RBC analysts say changes to tariffs, higher energy prices, and CUSMA renewal talks are shaping Canada’s macro backdrop, with effects on the Canadian Dollar (CAD). They expect March trade to improve due to stronger net energy exports, while 2026 may bring a steadier trade setting, with added support from earlier Bank of Canada (BoC) rate cuts and fiscal spending.
They note monthly trade data may be skewed by the timing of tariff announcements. They add that the US tariff rate on imports from Canada was likely less affected than most other countries after a February shift in US tariff policy following a US Supreme Court ruling against IEEPA tariffs.
Energy Prices And Trade Balance
They report that a rise in energy prices linked to conflict in the Middle East is expected to increase Canada’s net energy trade balance. They also state this would raise costs for consumers.
They expect CUSMA renewal negotiations to intensify in coming months, keeping trade uncertainty in place. They project a base case where 2026 has a more stable global trade backdrop, though with higher tariff rates than before, making trade less of a drag on growth than in 2025.
They say the delayed effects of earlier BoC interest rate cuts and higher government spending plans may help improve per-person and per-worker economic conditions in the year ahead. The article was produced using an AI tool and reviewed by an editor.
We see a mix of signals that suggest upcoming choppiness for the Canadian dollar. With the CUSMA renewal talks creating daily headline risk, implied volatility on USD/CAD options has already climbed above its 90-day average. This environment makes strategies like buying straddles attractive to capture a significant price move in either direction over the next few weeks.
Market Implications For The Canadian Dollar
The recent conflict-driven spike in energy prices, with WTI crude holding firm above $95 a barrel, is a significant tailwind for the Canadian dollar. We anticipate the upcoming March trade balance figures will reflect this strength, likely showing a wider surplus due to higher net energy exports. Traders might view any CAD weakness as a temporary buying opportunity based on this fundamental support.
We are seeing the positive effects of the Bank of Canada’s rate cuts from last year, which are now filtering through the economy alongside government spending. The market, through Canadian Overnight Index Swaps, is no longer pricing in any further rate cuts for 2026, creating a supportive floor for the currency. This stability from monetary policy suggests that shocks to the CAD will more likely come from trade news than from the central bank.
Looking back at the trade headwinds from 2025, the current environment appears more stable, especially since the February U.S. tariff adjustments had a muted impact on Canadian goods. However, the primary focus remains on the CUSMA negotiations, which will be the main driver of short-term sentiment. We advise positioning portfolios to be nimble, ready to react to negotiation headlines which could easily overshadow positive economic data.
