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Canadian Prime Minister Mark Carney announced that the long-standing economic integration between Canada and the US has ended. He indicated that this change represents a significant shift in how the two nations will interact economically.
The exchange rate of USD/CAD showed a decrease of 0.02%, trading at 1.3990. This change in trade relations and its impact on the Canadian Dollar is notable.
Factors Influencing the Canadian Dollar
The value of the Canadian Dollar is influenced by various factors such as the level of interest rates set by the Bank of Canada, oil prices, and the country’s economic health. Furthermore, the trade balance, inflation data, and macroeconomic indicators play significant roles.
Decisions made by the Bank of Canada, like interest rate adjustments, affect the Canadian Dollar. Higher rates often enhance CAD value by attracting foreign capital, whereas quantitative easing can diminish CAD strength.
Oil prices are pivotal for the Canadian Dollar due to its status as Canada’s major export. Variations in oil prices typically correlate with CAD fluctuations, affecting trade balances positively or negatively.
Economic data, including GDP and employment figures, are crucial for CAD valuation. Strong economic indicators typically strengthen CAD by attracting investment and potentially prompting interest rate increases.
Market Reaction to New Trade Relations
The Prime Minister’s statement signals a major shift, meaning we should prepare for higher volatility in the Canadian dollar. The market’s initial quiet reaction below 1.4000 is likely temporary as traders digest this fundamental break from the past. We should consider buying options to profit from the price swings that are almost certain to follow.
This political announcement aligns with recent economic data, adding to its credibility. Statistics Canada reported last week that exports to the US fell by 3.5% in the third quarter of 2025, a trend that began after the US imposed new ‘reciprocity tariffs’ earlier in the year. The CBOE/CME FX Canadian Dollar Volatility Index (CVCAD) has already jumped to a 24-month high this morning, suggesting the options market is bracing for impact.
Given that the US accounts for over 70% of Canada’s trade, this “rupture” is fundamentally bearish for the CAD. We see a strong case for positioning for a weaker Canadian dollar against the US dollar in the coming weeks. A sustained move above the 1.4000 level now seems much more likely.
This outlook is reinforced by the likely response from the Bank of Canada. Last month, the BoC held its overnight rate at 4.25%, citing “growing uncertainty in global trade patterns” as a key risk. Any further economic fallout from this political shift will almost certainly force the central bank to adopt a more dovish stance, further weighing on the currency.
The price of oil, normally a source of strength for the CAD, may offer less support this time. The spread between Western Canadian Select and WTI crude has widened to over $20 a barrel, reflecting concerns over pipeline capacity and future access to US refineries. This Canada-specific discount weakens the link between rising global oil prices and a stronger Canadian dollar.
We saw a similar, though less severe, spike in CAD volatility back in 2018 during the renegotiation of NAFTA into the USMCA. However, the language used now is far more severe, describing a “rupture” rather than a renegotiation. This suggests the resulting market moves could be significantly larger and more prolonged than what we experienced then.
