USD\/CAD eased to about 1.3665 in Asian trading on Monday, leaving the Canadian Dollar above 1.3650. Trading was shaped by tariff uncertainty in the US and moves in crude oil, with markets also waiting for the US Producer Price Index (PPI) for January due on Friday.<\/p>\n
The US Supreme Court struck down tariffs pursued under the International Emergency Economic Powers Act (IEEPA). In response, President Donald Trump imposed a blanket 15% levy on imports, which weighed on the US Dollar.<\/p>\n
Most Canadian exports were already exempt from the IEEPA tariffs. Product-specific tariff measures affecting Canada were not changed by the court decision.<\/p>\n
Geopolitical risks were linked to crude oil price swings, which can affect the commodity-linked Canadian Dollar. The New York Times reported on Sunday that Trump is considering limited airstrikes on Iran.<\/p>\n
Trump said a larger attack could follow in the coming months if diplomacy or any initial targeted US action fails to meet his demand that Iran give up its nuclear programme. The next round of US-Iran talks is set for Thursday in Geneva.<\/p>\n
We see growing uncertainty pushing the USD\/CAD pair lower, creating opportunities for derivative plays. The combination of unpredictable US tariff policy and rising Middle East tension suggests volatility will likely increase in the weeks ahead. Traders should be prepared for sharp moves, especially surrounding the US-Iran talks scheduled for this Thursday.<\/p>\n
The new 15% blanket import levy from the US is a significant headwind for the US dollar itself. We saw how targeted tariffs during the 2018-2019 period created market jitters, and this broader, more aggressive stance is likely to weaken confidence in the dollar. This self-inflicted pressure makes shorting the USD against commodity currencies an attractive strategy.<\/p>\n
At the same time, the potential for conflict with Iran provides a powerful catalyst for higher crude oil prices, which directly benefits the loonie. We only need to look back at early 2022, when geopolitical events in Europe caused Brent crude to spike over 25% in two weeks. With energy products accounting for roughly 27% of Canada’s total exports in 2025, a sustained rise in oil would provide a strong tailwind for the Canadian dollar.<\/p>\n
Given these dynamics, traders should consider buying USD\/CAD put options expiring in the next several weeks. This strategy offers a defined-risk position to capitalize on a potential downward move in the pair. An increase in oil prices or further erratic US trade policy would make these positions profitable, while the fixed cost of the option limits potential losses if the situation de-escalates unexpectedly.<\/p>\n
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