The Canadian Dollar (CAD) is currently the weakest currency in the G10. This is due to challenges from US risks and intervention. A report from Commerzbank by Michael Pfister suggests these challenges will continue this year, with only a gradual decrease in the USD/CAD exchange rate. The CAD will likely keep feeling the impact of US developments, requiring a higher risk premium. Recovery for the CAD is expected to be slow unless a comprehensive deal with the US or a finalized revision of the USMCA agreement occurs.

Fxstreet Insights Team

The FXStreet Insights Team consists of journalists who gather observations from market experts. The content is reviewed by an editor and includes insights from both commercial analysts and others. The article also includes updates like the AUD/JPY stabilizing around 106.00 and Australia’s CPI predicted to rise by 3.6% year over year. Other trends mentioned include EUR/USD reaching multi-month highs and silver price forecasts. Additionally, there’s information on the top brokers in various regions for 2026. Readers should conduct their own research before making investment decisions since FXStreet and its authors do not guarantee the accuracy of the information and are not registered investment advisors. The Canadian dollar is encountering challenges due to renewed US trade risks, and this instability is likely to continue. This situation justifies a risk premium on the currency, which is already the weakest in the G10 this month. Traders should expect this trend to influence market actions in the upcoming weeks.

The Impact Of USMCA Review

The upcoming review of the USMCA trade agreement in 2026 is the main source of uncertainty, especially since bilateral trade is expected to exceed $850 billion in 2025. Political comments from the White House led to sharp changes in the loonie last year. This highlights the potential benefits of holding some protection, such as longer-dated USD/CAD call options, to guard against sudden political changes. The options market is already reflecting this tension, with the implied volatility on three-month USD/CAD options rising to 8.2% from last month’s lows. This increased volatility makes selling premium through strategies like iron condors appealing for those who predict the pair will remain unstable but within a range. However, a serious breakdown in trade talks could lead to a significant breakout. The key takeaway is not just about USD/CAD but about the overall weakness of the Canadian dollar. The Bank of Canada’s cautious approach to interest rates, especially after the stronger signals from the European Central Bank last week, suggests that pairs like EUR/CAD may have more room to rise. Using futures or call option spreads on these cross-currency pairs could be an effective way to trade this divergence. Since the forecast indicates a slow decline rather than a sudden drop in USD/CAD, buying outright put options may be expensive due to high volatility. A bear put spread may be a better strategy to express a slightly bearish outlook while managing risk and reducing initial costs. This aligns with expectations of a slow movement, rather than a rapid collapse in the pair. Create your live VT Markets account and start trading now.

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