The Canadian Dollar (CAD) is currently weaker against the US Dollar (USD), staying within a known range. The Bank of Canada had thought about lowering interest rates by 25 basis points in July but decided to wait for more economic data. The Euro-CAD rate recently hit 1.6134, its highest since 2018. This spike is linked to tariff risks affecting the CAD, which diverges from the fair value estimate of 1.53.

Current USD/CAD Trading Range

The CAD struggles to move beyond the mid-1.37 range, while the USD makes small gains. The USD faces resistance at 1.3800/10, and support is found at 1.3750. On August 14, 2025, we view the Bank of Canada’s choice to maintain rates in July as significant. Recent inflation data for July shows a slight decrease to 2.7%, making a rate cut in September more likely. This difference in policy from the U.S. Federal Reserve, which is holding steady, puts pressure on the Canadian dollar. Given this situation, we are closely monitoring the 1.3800 resistance for USD/CAD. A simple strategy is to buy call options with a strike price just above 1.3800, anticipating a breakout in the next few weeks. This method minimizes risk while taking advantage of the expected weakness in the Canadian dollar against the USD.

Market Impact of Tariff Risks

The Euro situation is even more notable, with the EUR/CAD rate at levels not seen since 2018. Concerns arise from the uncertainty around the upcoming review of the USMCA trade agreement in 2026, creating tariff risk premiums on the CAD. We’ve seen similar increases during the NAFTA renegotiations around 2017-2018, highlighting political risk as a key factor. The difference between the current EUR/CAD rate near 1.61 and the estimated fair value of around 1.53 suggests that the pairing is stretched. This leads to considering volatility strategies, like buying a strangle, which involves purchasing out-of-the-money call and put options. This strategy allows us to profit from significant price fluctuations, whether tariff fears cause an increase or a resolution leads to a decline. Create your live VT Markets account and start trading now.

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