Canada’s trade minister plans to visit Washington, DC for trade discussions in the next two weeks. This announcement contributed to the Canadian dollar’s strength, as the USD/CAD rate fell by 23 pips to 1.3768, making the Canadian dollar the strongest currency among the G10 today.
Recently, Canada has reduced certain tariffs and paused trade actions, indicating optimism for a potential agreement. Tariffs were removed last month, and a dispute over lumber tariffs has been put on hold. Canadian steel and aluminium industries are currently affected by high tariffs, while farmers face challenges due to Chinese retaliatory tariffs following Canada’s ban on Chinese auto imports.
Prime Minister Visit To Mexico
Prime Minister Mark Carney recently visited Mexico to solidify a “strategic comprehensive partnership” to enhance trade and investment. The agreement focuses on improving trade infrastructure like ports and rail and increasing trade in sectors like energy, critical minerals, and agriculture.
Analyzing the USD/CAD exchange rate suggests a potential head-and-shoulders top formation. If the neckline breaks, a return to the summer lows could be expected.
With Canada’s trade minister heading to Washington, we see a clear catalyst for the Canadian dollar. The talks are critical, as recent Statistics Canada data from Q2 2025 confirmed that over 70% of Canada’s merchandise exports go to the United States, underscoring the high stakes of any new agreement. The loonie’s immediate jump to 1.3768 shows the market is pricing in a positive outcome.
Canada’s recent moves to drop retaliatory tariffs suggest a genuine effort to find common ground. This isn’t surprising, given that government reports from earlier in 2025 showed a 12% decline in output for steel and aluminum producers since the last round of tariffs began. We see these concessions as a signal that officials are under pressure to secure a deal that alleviates this economic pain.
Technical Analysis And Market Outlook
From a technical standpoint, the head-and-shoulders top forming on the USD/CAD chart reinforces this bearish outlook for the pair. A decisive break below the neckline, currently around 1.3720, could trigger further selling toward the summer 2025 lows near 1.3500. Traders should consider buying CAD call options or USD/CAD put options to position for this potential drop.
The upcoming talks are a significant event risk that could inject much-needed volatility into the market. Implied volatility for USD/CAD options expiring in October has already ticked up to 7.2%, up from a low of 6.5% last month, indicating that traders are preparing for a larger-than-usual price swing. This reminds us of the sharp currency moves seen during the final USMCA negotiations back in 2018.
Fundamentally, the Bank of Canada’s position provides an additional tailwind for the loonie. Unlike the U.S. Federal Reserve, which has signaled a pause, the BoC has maintained a hawkish stance, holding its policy rate at 3.75% in its September 2025 meeting. This rate differential makes holding Canadian dollars more attractive and supports our view of a stronger currency in the coming weeks.
