Canada will remove retaliatory tariffs on various US products and apply tariff exemptions on goods under the US-Mexico-Canada Agreement (USMCA). From August 1, 2025, the US increased tariffs from 25% to 35% on Canadian goods not covered under USMCA.
USMCA-compliant goods, which include nearly all energy exports, remain duty-free, and over 85% of Canada-US trade is still unaffected by these tariffs. Sector-specific tariffs remain in place for steel and aluminium at 50%, while automobiles and parts not compliant with USMCA face a 25% tariff.
Currency Market Trends
In currency markets, the USDCAD has moved lower, approaching a swing area between 1.3812 and 1.38315, with a rising trendline near 1.38025. The high today stalled close to the 38.2% retracement from the March high.
Yesterday, USDCAD appeared to gain momentum as it approached a key swing area between 1.3891 and 1.3904. A breakthrough could lead toward the retracement level at 1.39229. Today, the price reached 1.3924, with further potential movements below the 100-bar moving average potentially impacting the 100-day and 200-bar moving averages on the 4-hour chart.
Canada removing retaliatory tariffs is likely contributing to the Canadian dollar’s strength. We saw USDCAD push down after stalling at the key 1.3924 resistance level. This failure confirms that sellers are still in control after the price failed to hold above the 38.2% retracement of the March 2025 decline.
The new 50% tariffs on steel and aluminum are a major concern, even though over 85% of trade remains exempt under USMCA. Based on 2024 trade data from Statistics Canada, these sectors accounted for over $18 billion in exports, so we expect this to create targeted economic pressure and uncertainty. This situation feels similar to the volatility we saw during the initial US-China trade disputes back in 2018.
Volatility and Market Sentiment
For now, we are closely watching the swing area between 1.3812 and 1.38315 for support. A definitive break below the rising 100-bar moving average near 1.38025 would be a strong bearish signal. This move would make put options on USDCAD more attractive as the price could then target the 100-day moving average at 1.3768.
The conflicting tariff news suggests we should prepare for higher volatility. Data shows that 1-month implied volatility for USDCAD options has already risen from 6.0% to 7.2% since the start of August 2025. This environment favors strategies that can profit from sharp price swings in either direction, such as long straddles or strangles.
On the other hand, any renewed push above the 1.3904 area would put the 1.3924 resistance back in play. A sustained break and daily close above this level would invalidate the current bearish sentiment. Such a move would force us to reconsider, as it would signal that the market is more worried about the impact of US tariffs than Canada’s tariff removal.
