Canadian Prime Minister expresses disappointment over US decision to raise tariffs to 35%
by VT Markets
/
Aug 1, 2025
Canada’s Prime Minister, Mark Carney, is unhappy with the U.S. decision to raise tariffs on Canadian exports to 35%. This increase affects key sectors like lumber, steel, aluminum, and autos, which are not included in the USMCA agreement.
The U.S. has hinted at possible negotiations, but tariffs are set to rise for various countries, including Canada, after the August 1 deadline. Previously, tariffs were at 25%, but President Trump has signed an order raising them by an additional 10%.
Market Volatility Predictions
Today’s announcement of the 35% tariff will likely cause a significant spike in market volatility. The Chicago Board Options Exchange’s Volatility Index (VIX) experienced similar spikes during trade disputes in the late 2010s, so traders should brace for a similar situation. One strategy could be to buy call options on volatility ETFs to prepare for the upcoming uncertainty.
The Canadian dollar is likely to drop in value against the U.S. dollar. Since about 75% of Canadian exports go to the U.S., the tariff profoundly impacts Canada’s economy. Consider buying put options on the loonie or going long on USD/CAD futures, predicting a decline in the coming weeks.
The S&P/TSX Composite Index is expected to face significant pressure, particularly in the materials and industrial sectors. Companies in steel, aluminum, and auto parts are now at risk of losing their main market. Traders should think about purchasing put options on Canadian index ETFs like XIU to protect their portfolios or speculate on a possible downturn.
Interest Rate Outlook
This trade dispute raises the likelihood that the Bank of Canada might reduce interest rates to support the economy. In mid-2024, the Bank acted before the U.S. Federal Reserve to manage domestic issues, setting an important precedent. Traders might consider futures contracts on Canadian government bonds, as prices are expected to rise while yields fall.
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by VT Markets
Aug 1, 2025
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