Canadian Prime Minister Mark Carney commented on trade discussions with the US, stating they had been very detailed. Though no recent engagement with Trump occurred, Canada remains prepared to resume talks. The discussions had progressed until tension arose from Ontario advertisements.

Importance Of Trade With The US

Carney emphasised the importance of the trading relationship with the US, noting Canada’s provision of essential goods. He mentioned a backup plan if negotiations with Trump falter. Despite challenges, he stressed maintaining composure and a focus on international market opportunities.

The Canadian Dollar (CAD) weakened against major currencies, notably the Australian Dollar, amid a 0.16% decline in USD/CAD to approximately 1.3975. Meanwhile, Carney aims for upcoming discussions with Chinese President Xi at APEC on bilateral trade.

USD’s weakness is influenced by a shift toward alternatives like Gold and Bitcoin. Solana (SOL) continues to rise, with increased institutional interest and confidence among investors. In broader market movements, Gold faced selling pressure due to growing optimism over a potential US-China trade deal. The US Dollar’s trust among global trade partners remains tenuous amidst these developments.

Given the stalled trade talks between the US and Canada, we see a period of increased uncertainty for the Canadian dollar. The current USD/CAD level around 1.3975 reflects this standstill, but it doesn’t price in the full risk of potential tariffs. Any headline, whether positive or negative, is likely to cause a significant move in the coming weeks.

Volatility As A Tradable Asset

This uncertainty suggests that volatility itself is a tradable asset right now. We’ve seen one-month implied volatility on USD/CAD options rise from a summer average of 6% to over 9% as of this morning, showing that the market is bracing for a sharp move. Traders should consider strategies like straddles or strangles that profit from a large price swing, regardless of the direction.

For those with a directional view, options can protect against sudden reversals. If we believe the US will impose the threatened 10% tariff, buying call options on USD/CAD offers upside exposure toward the 1.4200 level while capping potential losses. The market is already showing a bias for this, with a notable rise in demand for calls expiring in late November.

Conversely, there is still tremendous value in a negotiated deal, as nearly $2.5 billion in goods and services crosses the border daily. A surprise breakthrough could send USD/CAD sharply lower, back toward the 1.3750 range we saw earlier this year. In this case, purchasing put options would be a prudent way to position for a stronger Canadian dollar.

We have to remember the sharp swings we experienced during the USMCA negotiations back in the late 2010s, where political rhetoric often caused short-term overreactions. The pattern was one of high tension followed by an eventual agreement, a history that suggests staying hedged is more important than making large, unhedged bets. This time feels similar, with both sides posturing but acknowledging the deep economic ties.

It’s also worth noting the Canadian dollar’s weakness against other currencies, particularly the Australian dollar. With Canada facing trade headwinds and Australia benefiting from strong commodity demand, a long AUD/CAD position could serve as a useful hedge. This pair trade allows us to isolate the specific political risks facing Canada from broader market movements.

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