The U.S. Secretary of Commerce has proposed a 35% tariff on all Canadian goods that are not included in the USMCA agreement. President Trump has set August 1 as the deadline for this measure. The Secretary noted that the situation could still change based on actions from Canadian Prime Minister Mark Carney.

Deadline Approaches for Tariff Decision

With the August 1 deadline just hours away, the threat of a 35% tariff on various Canadian goods is causing significant tension. This situation could lead to a major shift in the markets, especially affecting the USD/CAD currency pair, which is poised for a significant move. The stakes are high because two-way trade in goods not covered by the current agreement exceeded $250 billion in 2024, according to recent figures from the Commerce Department. Concerns are growing in the market, reflected by a spike in the CBOE Volatility Index for the S&P/TSX 60, which has risen over 30% this week. This uncertainty makes holding positions without hedging a risky move as the deadline approaches. Traders should focus on buying downside protection for Canadian assets. This involves purchasing put options on the iShares MSCI Canada ETF (EWL) or specific Canadian exporters in the auto parts and resource sectors. These positions will benefit if the tariffs are enacted and Canadian stocks decline.

Strategies for Possible Market Changes

For those looking to take risks, speculating on a weaker Canadian dollar through futures or call options on USD/CAD is a straightforward response to the tariff news. The Canadian dollar has already dropped to a two-year low around $0.70 USD, and could drop further if tariffs are confirmed. Given the high volatility, options straddles, which profit from significant price movements in either direction, are also a viable, though costly, option. We are seeing a situation similar to the US-China trade disputes from 2018 to 2019, where market trends were heavily influenced by news headlines for months. A last-minute phone call could trigger a significant relief rally, impacting anyone who has taken overly pessimistic positions. On the other hand, if the deadline passes quietly, we can expect a sharp downturn. Create your live VT Markets account and start trading now.

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