Canada’s Prime Minister Mark Carney has announced that the country will not seek a free trade agreement with China. This comes as the Trump administration considers imposing hefty tariffs. Instead of a broad agreement, Canada will focus on resolving specific trade tensions. In contrast, the Trump administration is investing $1.6 billion in USA Rare Earth to create a domestic mining and magnet facility.

The FXStreet Insights Team

The FXStreet Insights Team includes journalists who gather market insights from experts, along with notes from various analysts. This summary was created with help from an AI tool and reviewed by an editor. Canada’s choice to skip a free trade agreement with China marks a notable change in its trade strategy. This decision aims to address specific issues while responding to a protectionist U.S. government, suggesting that Canada is moving closer to Washington. As a result, we may see increased volatility in Canadian assets. This situation poses challenges for the Canadian dollar since China has been a vital growth partner. In 2025, trade between the two countries surpassed C$130 billion. Any downturn in this relationship could weaken Canada’s economic prospects. Traders might want to buy USD/CAD call options to prepare for possible CAD weakness in the coming weeks. The pressure on the Canadian dollar is heightened by the interest rate gap, as the Bank of Canada’s rates are still lower than those of the U.S. Federal Reserve. We have seen the USD/CAD pair testing the 1.37 resistance level several times this month. A clear break above this could lead to a move towards the 1.39-1.40 range, last observed in the market turbulence of early 2025.

Supply Chain Security and Geopolitical Tensions

At the same time, the U.S. government’s investment in domestic rare earth production reflects a larger trend towards supply chain security and decoupling. This directly challenges China, which controlled over 70% of global rare earth mining and nearly 90% of processing in 2025. This move could lead to price fluctuations in related industrial metals and affect companies reliant on them. Amid these rising geopolitical tensions, we can expect general market volatility to increase. During similar trade disputes in the late 2020s, markets experienced significant, unexpected swings. We recommend purchasing VIX call options or using other long-volatility strategies as a precaution against sudden disruptions caused by tariff announcements or diplomatic issues. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now