Canadian Prime Minister Carney has shared his thoughts on the ongoing trade talks with the United States, saying they are currently very intense. He insists that any trade agreement must be fair for Canada. Carney also noted that a deal without tariffs is unlikely, and the focus is now on how high those tariffs may be.

Challenge of Negotiations

When asked about the difficulties of negotiating with Canada, he acknowledged the challenge but emphasized that these efforts are for the benefit of the country. His comments point to growing uncertainty in Canadian-U.S. trade relations. This uncertainty is likely to cause increased fluctuations in Canadian assets, especially the USD/CAD exchange rate. We should prepare for a weaker Canadian dollar in the derivatives market. The Prime Minister’s remarks are crucial since the United States is Canada’s biggest trading partner. Last year, two-way trade in goods and services topped $900 billion, with over 75% of Canadian exports going to the U.S. Any tariffs could significantly harm the Canadian economy. To act on this outlook, buying currency options makes sense. Consider purchasing call options on the USD/CAD pair, which would profit if the Canadian dollar weakens as expected. His statement that a no-tariff deal is unlikely supports this negative outlook for the loonie.

Trade Friction Patterns

Historically, trade friction has led to a weaker Canadian dollar. During the tense USMCA negotiations in 2018, the USD/CAD exchange rate rose from around 1.25 to over 1.35 as negative news surfaced. We expect a similar pattern as current trade challenges continue. Additionally, there are risks for the S&P/TSX Composite index, especially among manufacturers and resource companies. We recommend buying put options on ETFs that track the Canadian market to protect against potential downturns caused by tariff news. The mention that Canada is being “difficult” suggests these talks may become contentious, affecting investor confidence. The uncertainty about future tariffs presents its own trading opportunities. This uncertainty, highlighted in Carney’s remarks, indicates we should brace for sharp price movements in both directions as news unfolds. We can set up long volatility plays, like straddles on key Canadian export stocks, to profit from significant moves regardless of the final deal. This view is further supported by the upcoming 2026 joint review of the USMCA agreement, which figures like Trump have said could be contentious. The current intensity of talks likely signifies a lengthy period of trade-related volatility. Our strategies should be designed to take advantage of this theme over the coming months. Create your live VT Markets account and start trading now.

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