USD/CAD eased to about 1.3690 on Friday as the US Dollar gave up earlier gains, while the Canadian Dollar stayed steady. The pair still headed for modest weekly gains after the US Supreme Court struck down President Donald Trump’s global tariffs.
In a 6–3 decision, the Court said Trump exceeded his authority by using the International Emergency Economic Powers Act to impose broad import duties. The Court did not address tariff refunds, and the Penn Wharton Budget Model estimates refund claims could exceed $175 billion.
Tariff Ruling Keeps Markets On Edge
Uncertainty remained because Trump had said he could look for other legal routes to keep tariffs in place. Markets also reacted to new economic data from Canada and the United States.
Canada’s Retail Sales fell 0.4% month-on-month in December, versus a 0.5% fall expected, after a 1.2% rise in November. Retail Sales excluding autos rose 0.1%, beating forecasts for a 0.3% drop, and slowing from 1.6%.
US GDP grew at an annualised 1.4% in Q4 2025, down from 4.4% and below the 3% forecast. Core PCE rose 0.4% month-on-month and 3.0% year-on-year, while headline PCE rose 0.4% month-on-month and 2.9% year-on-year.
February S&P Global Composite PMI fell to 52.3 from 53, with Manufacturing at 51.2 and Services at 52.3. University of Michigan sentiment slipped to 56.6, and 1-year and 5-year inflation expectations eased to 3.4% and 3.3%.
Outlook For Usdcad Volatility Ahead
The Supreme Court’s decision to strike down the tariffs introduces significant uncertainty and a clear bearish catalyst for the US dollar. We should expect elevated volatility in USD/CAD over the coming weeks as the market grapples with the fallout. The unresolved issue of over $175 billion in potential refunds alone is enough to keep traders on edge.
We can look back to the 2018-2019 period, when the implementation of these same tariffs created sharp moves and instability for the Canadian dollar. The reversal of this policy is fundamentally positive for Canada, whose economy relies heavily on trade with the United States, with over 75% of its exports destined for the US market. This historical precedent suggests a strong potential for a sustained move lower in the USD/CAD pair.
This fundamental shock is compounded by recent weak US economic data from the end of 2025 and the start of this year. The slowdown in US GDP to just 1.4% and cooling PMI figures align with the narrative of a weaker US dollar. However, the persistently sticky Core PCE inflation, now at 3.0%, is the main counterargument, suggesting the Federal Reserve may not be able to cut rates as soon as the market hopes.
Given this conflict between a major bearish catalyst and stubborn inflation, we see value in using options to express a view. Buying put options on USD/CAD allows us to position for downside in the pair while capping our risk if Fed hawkishness prevails. This strategy will profit if the tariff news and weak growth data ultimately outweigh the inflation concerns.
The interest rate differential, which has supported the US dollar, is now being called into question by the slowing American economy. The Bank of Canada may feel less pressure to match the Fed’s restrictive stance, especially with the tariff burden lifted. Therefore, traders who are less certain on direction could consider long volatility strategies, such as straddles, to profit from a significant price swing as the market decides which narrative will dominate.
