Canada’s Trade Minister will visit Washington, DC in the next two weeks for trade talks. This news strengthened the Canadian dollar, causing the USD/CAD exchange rate to drop by 23 pips to 1.3768, making it the strongest currency among the G10 today. Recently, Canada has lowered some tariffs and paused trade actions, showing optimism for a potential agreement. Tariffs were lifted last month, and a dispute over lumber tariffs has been suspended. High tariffs still impact Canadian steel and aluminum industries, while farmers struggle with Chinese retaliatory tariffs following Canada’s ban on Chinese auto imports.

Prime Minister’s Visit to Mexico

Prime Minister Mark Carney visited Mexico to strengthen a “strategic comprehensive partnership” aimed at boosting trade and investment. The agreement focuses on improving trade infrastructure, such as ports and rail, and increasing trade in areas like energy, critical minerals, and agriculture. Examining the USD/CAD exchange rate shows a possible head-and-shoulders top formation. If the neckline breaks, we might return to the summer lows. With Canada’s Trade Minister going to Washington, we have a clear reason for the Canadian dollar’s movement. These discussions are crucial since recent Statistics Canada data from Q2 2025 revealed that over 70% of Canada’s merchandise exports go to the United States, highlighting the importance of any new agreement. The loonie’s quick rise to 1.3768 indicates that the market is anticipating a positive outcome. Canada’s recent decision to remove retaliatory tariffs suggests a true desire to find common ground. Earlier government reports from 2025 noted a 12% drop in output for steel and aluminum producers since the last round of tariffs, hinting that officials feel pressure to secure a deal that eases this economic strain.

Technical Analysis and Market Outlook

From a technical perspective, the head-and-shoulders top on the USD/CAD chart supports a bearish outlook for the currency pair. A clear break below the neckline, currently near 1.3720, could lead to more selling towards the summer 2025 lows around 1.3500. Traders might consider buying CAD call options or USD/CAD put options to get ready for this possible drop. The upcoming discussions pose a significant event risk that could introduce needed volatility into the market. Implied volatility for USD/CAD options expiring in October has risen to 7.2%, up from 6.5% last month, signaling that traders expect a larger-than-usual price movement. This situation reminds us of the sharp currency fluctuations during the final USMCA negotiations in 2018. Fundamentally, the Bank of Canada’s position offers additional support for the loonie. Unlike the U.S. Federal Reserve, which has hinted at a pause, the BoC has taken a hawkish stance, keeping its policy rate at 3.75% during its September 2025 meeting. This rate difference makes holding Canadian dollars more appealing and supports our expectation of a stronger currency in the coming weeks. Create your live VT Markets account and start trading now.

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