The Canadian Dollar (CAD) remains largely unchanged despite modest movements in US equity futures and crude prices. The recent trade agreement between Canada and China has not provided a lift to the CAD, according to Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret.
The agreement reached by PM Carney with China involves lower tariffs on Chinese electric vehicles and Canadian agricultural products, with intentions for increased trade in the energy sector. This development is expected to support the Canadian economy and potentially stabilise the USD/CAD exchange rate, which currently hovers around the 1.39 mark.
Usd Cad Exchange Rate Outlook
Despite these factors, the USD/CAD exchange rate has remained sideways, with the USD unable to sustain gains above 1.3925. There is potential for a double top pattern in the short-term chart, and a drop in USD below 1.3885 could indicate a further decline to the 1.3855 range. A significant downturn could see the USD reach the upper 1.37s.
The market is currently ignoring the positive Canada-China trade deal, keeping the Canadian dollar flat. We see the USD/CAD pair stuck in a range with a firm cap around the 1.39 level. This presents an opportunity as the fundamental benefits of the agreement, especially for agricultural exports, have not yet been priced in.
Looking back, we saw canola exports to China dip nearly 15% through 2025 due to tariff disputes, so this new deal should provide a significant long-term boost. However, with WTI crude oil prices hovering in a stable but unexciting $80-$85 per barrel range, oil is not giving the CAD its usual lift. This explains why the currency is not reacting strongly to the otherwise positive news.
The technical picture suggests a potential double top has formed near 1.3925, signaling possible downward pressure on the US dollar. A break below the 1.3855 level could trigger a move towards the upper 1.37s. Given this setup, traders might consider buying USD/CAD put options with strike prices around 1.3850 to position for a potential decline while defining their risk.
Options Strategy and Market Implications
This sideways price action has also compressed implied volatility, making options relatively cheap. For those who believe the 1.39 cap will hold firmly, selling USD call spreads with a ceiling above 1.3950 could be a viable strategy to collect premium. This approach benefits from both the strong resistance and the expected lack of a major upside breakout in the near term.
The key factor remains the interest rate differential between the Bank of Canada and the US Federal Reserve, which kept the pair elevated for much of 2025. Recent data from last week showed US core inflation remains stubbornly above 3%, while Canadian inflation has moderated to 2.6%. This divergence continues to support the US dollar, but the new trade fundamentals may begin to shift that balance.
