BNY said the Trump administration will impose a fresh 50% tariff on selected Canadian goods, a direct trade shock that has added strain to U.S.–Canada negotiations and weighed on the Canadian Dollar (CAD). The levies are due to take effect in 30 days and cover milk and cream, hockey equipment and alcohol, while excluding major resource imports such as energy, potash, fish and critical minerals. Goods already subject to separate auto and steel duties are also outside the new measures.
Washington justified the move under Section 338 of the 1930 Tariff Act, linking it to alleged unfair Canadian treatment of U.S. alcohol, cars and dairy. U.S. officials said there will be no United States-Mexico-Canada Agreement (USMCA) exemptions. Canada said it had seen similar threats before, as it seeks to preserve market access and limit domestic damage after the U.S. declined to renew USMCA.
Canadian Dollar Faces Downward Pressure
With the new 50-percent U.S. tariffs set to take effect in less than 30 days, we expect the Canadian Dollar (CAD) to face severe downward pressure. Historically, during the 2018 trade renegotiations, the Loonie plunged over 8% against the greenback as trade anxieties escalated. We advise derivative traders to position for a test of the 1.45 to 1.47 range on the USD/CAD pair over the coming weeks.
Derivative Strategies and Cross-Currency Trades
To capitalize on this trade shock, we recommend buying short-dated USD/CAD call options to capture the immediate downward momentum of the Canadian currency. Implied volatility for one-month CAD options is rising quickly, making vanilla calls highly attractive before option premiums peak. Traders should lock in these option structures now before the market fully prices in the late-August tariff implementation.
We also suggest exploring cross-currency plays, particularly shorting the CAD against safe-haven currencies like the Swiss Franc. Even though major Canadian energy exports are currently exempt, any broader economic slowdown will eventually hurt local markets and resource pricing. By utilizing these derivative strategies, we can protect our portfolios against what is quickly becoming a structural shift in North American trade.
