Alberta Premier Danielle Smith is hopeful about a possible trade agreement between Canada and the United States. A report from the Toronto Sun indicates that this could happen before the G7 summit, potentially as early as next week. The proposed deal would not cover every detail but would highlight key points of a new trade arrangement. This could bring more stability and lower tariffs on Canadian steel, which might help boost the Canadian dollar.

Progress in Trade Talks

Mark Carney confirmed that discussions with the US are moving forward. Canada’s top trade negotiator was recently in Washington, and the minister of industry mentioned that more time is needed to address tariff issues. The USD/CAD exchange rate has reached its lowest point since October, with little support until it hits 1.34. In simple terms, there are signs that trade relations between Canada and the US might be improving. Smith seems confident that a preliminary trade deal could be on the way—though it won’t be a full agreement, it should help ease some issues, particularly concerning Canadian steel exports. Such progress can improve sentiment and increase demand for the Canadian dollar. Carney’s brief comments confirm that real talks are happening, not just in theory, but with actual negotiators involved. His tone is measured, reflecting genuine engagement that matters to markets, especially in currency trading, where even small updates can lead to quick changes in positioning.

Currency Market Effects

The current price movements in the USD/CAD pair are noteworthy. It’s at its lowest level in over six months, with scant immediate support until 1.34. This doesn’t automatically predict a downward trend, but the lack of a solid support level puts pressure on the US dollar. Unless demand from the US picks up, the Canadian dollar could have room to gain more value. We’re not expecting drastic changes, but the outlook looks gentler unless buyers step back in. Attention should be paid to any announcements that come out, especially the wording used—whether it’s conditional or binding—and how tariffs are mentioned. Not all headlines carry the same weight. The difference between “discussions continue” and “an agreement has been reached” may seem slight, yet it can lead to very different outcomes. From our perspective, short-term contracts may quickly reflect new expectations, especially when policy and real trade are considered together. Spreads could start leaning towards long positions on the Canadian dollar, particularly among those already hedged against dollar exposure. Monitoring for shifts in implied volatility will be essential since markets have been stable lately, which can hide subtle changes in expectations. Risks still exist on both sides. A delay in the agreement or less favorable language could undermine recent support for the Canadian currency and shift momentum quickly. Powell will speak next week, and while his comments might not relate directly to this issue, any change in the US Federal Reserve’s tone could tighten conditions and limit further gains. What might have started as a simple bilateral discussion could expand into a broader economic narrative. Keeping track of movements in two-year notes and the five-year breakeven will provide real-time insights. For now, order books are thinning around the 1.3350 level. This doesn’t leave traders much room if prices drop further. We’ll be looking for changes in dealer positioning as more data comes in; any decline could trigger rapid moves if stops are hit. Create your live VT Markets account and start trading now.

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