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    Trump suspends trade negotiations with Canada, putting pressure on the Canadian dollar

    by VT Markets
    /
    Oct 27, 2025
    The US has stopped trade talks with Canada after an Ontario ad featuring Ronald Reagan criticized tariffs. In retaliation, Donald Trump halted discussions and raised tariffs on Canadian imports by 10%. This action has hurt the value of the Canadian dollar. Ontario announced it would stop running the advertisement earlier this week, but Trump’s decision has already strained trade relationships. Canada has benefits from the USMCA and other exemptions, but it still faces 35% tariffs on some imports. The Canadian dollar is likely to stay under pressure until the situation improves.

    Impact On Currency Markets

    The sudden end of trade talks puts immediate pressure on the Canadian dollar. Traders dealing in derivatives should prepare for a higher USD/CAD rate, as the political uncertainty is unlikely to clear up soon. The lack of clarity about which goods are impacted by the new 10% tariff adds to concerns in the market. The economic relationship between the US and Canada is significant, with trade in goods and services exceeding $960 billion based on the last full year’s data from 2024. We are already seeing changes in the derivatives market, where the 30-day implied volatility for USD/CAD options has surged from about 6% to over 9% in just one week. This shift indicates that traders expect larger price movements than usual. We have seen similar situations before, such as during the tense USMCA negotiations in 2018. Back then, uncertainties pushed the USD/CAD exchange rate from the low 1.20s to over 1.36. History shows that these disputes can drag on, benefiting the US dollar against the Canadian dollar.

    Trading Strategy

    Given the unpredictable announcements, buying USD/CAD call options that expire in one to three months is a smart move. This strategy allows traders to profit if the exchange rate rises, while limiting their risk to the premium paid. It’s a direct bet on ongoing tensions and further weakness of the Canadian dollar. Create your live VT Markets account and start trading now.

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