Canada will lift retaliatory tariffs on certain US products and apply tariff exemptions for goods covered under the US-Mexico-Canada Agreement (USMCA). Starting on August 1, 2025, the US increased tariffs on Canadian goods not included in USMCA from 25% to 35%. Goods that comply with USMCA, including most energy exports, will remain tariff-free, and over 85% of trade between Canada and the US will not be impacted by these tariffs. Some sector-specific tariffs, like those on steel and aluminum, remain at 50%. Additionally, automobiles and parts that do not meet USMCA requirements face a 25% tariff.

Currency Market Trends

In the currency markets, the USDCAD has decreased, nearing the swing area between 1.3812 and 1.38315, with a rising trendline around 1.38025. Today’s high was close to the 38.2% retracement level from March. Yesterday, USDCAD showed momentum as it neared a crucial swing area between 1.3891 and 1.3904. A breakthrough could push it toward the retracement level of 1.39229. Today, the price hit 1.3924, and further movements below the 100-bar moving average may impact the 100-day and 200-bar moving averages on the 4-hour chart. Canada’s removal of retaliatory tariffs likely boosted the Canadian dollar. We saw USDCAD decline after stalling at the key resistance level of 1.3924. This confirms that sellers are still in charge, as the price couldn’t hold above the 38.2% retracement from its decline in March 2025. The new 50% tariffs on steel and aluminum are concerning, despite over 85% of trade remaining exempt under USMCA. According to 2024 trade data from Statistics Canada, these sectors generated over $18 billion in exports. We expect this situation to create targeted economic pressure and uncertainty, reminiscent of the volatility during the initial US-China trade disputes in 2018.

Volatility and Market Sentiment

For now, we are monitoring the swing area between 1.3812 and 1.38315 for support. A clear break below the rising 100-bar moving average near 1.38025 would signal a strong bearish trend. This could make put options on USDCAD more appealing, as the price might then target the 100-day moving average at 1.3768. The mixed news about tariffs suggests we should brace for increased volatility. Data indicates that 1-month implied volatility for USDCAD options rose from 6.0% to 7.2% since August 2025 began. This environment benefits strategies that can capitalize on sharp price changes, like long straddles or strangles. Conversely, if the price pushes above the 1.3904 area again, the resistance at 1.3924 will come back into play. A sustained break and daily close above this level would negate the current bearish outlook and lead us to reconsider, as it would show that the market is more concerned about US tariffs than Canada’s removal of tariffs. Create your live VT Markets account and start trading now.

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