Insights 
VT 
Alberta Premier Danielle Smith expresses optimism about a near-term trade agreement between Canada and the US. A Toronto Sun report suggests it could happen before the G7 summit, possibly as soon as next week.
The proposed agreement wouldn’t be comprehensive but would outline the main points of a new trade arrangement. This would likely provide more stability and reduce tariffs on Canadian steel, potentially strengthening the Canadian dollar.
Progress In Trade Discussions
Mark Carney confirmed the progress of discussions with the US, with Canada’s top trade negotiator recently in Washington. The industry’s minister noted the need for more time to address tariff concerns.
The USD/CAD exchange rate is at its lowest since October, with minimal support until 1.34.
In plain terms, what we’ve seen so far is a measured signal that trade relations between the two countries may be warming slightly. Smith appears confident that a preliminary trade deal could be close, not a sweeping one, but enough to smooth certain edges. What’s been put forward isn’t a shift in position so much as a firm step towards less friction, particularly for Canadian steel exports. That sort of motion tends to lift sentiment and, by extension, strengthen demand for the domestic currency.
Carney’s comments, while brief, serve to confirm that talks are indeed happening, not just in the abstract, but with negotiators on the ground. His tone isn’t overstated. It reflects a level of engagement that holds weight with markets, especially currency and derivatives desks, where the fine edge of positioning often moves rapidly on even small updates.
Currency Market Implications
What stands out is the current price action in the USD/CAD pair. At its lowest level in more than six months, there’s little by way of immediate support until 1.34. That’s not an automatic indicator of momentum downward, but in the absence of any meaningful floor, it puts pressure on the dollar. If no new positive impulse appears for US-side demand, the Canadian dollar has at least a short runway to appreciate further. We’re not calling for sharp moves, but the path appears softer unless buyers return convincingly.
Focus should remain on the tone of any announcement that emerges, the language used—whether conditional or binding—and particularly, how tariffs are referenced. Not every headline should be treated as equal. The difference between “discussions continue” and “an agreement has been reached” may seem small, yet it leads to very different outcomes in execution.
From our side, short-dated contracts may begin to reflect new expectations rapidly—as they often do when policy and macro themes mix with real trade flows. Spreads could begin to tilt in favour of long positions on the loonie, especially among those already hedged through dollar exposure. Watching for signs of a shift in implied volatility will matter more than usual, as markets have been relatively well-behaved lately, which can mask subtle changes in assumptions.
Risk remains two-sided, as ever. A delay in the agreement, or softer language than hoped, could unwind the support seen in the Canadian currency and flip momentum quickly. Powell speaks next week, and even without direct connection to this file, any shift in tone from the US Fed could tighten conditions and cap further gains. What was expected, for instance, as a simple bilateral discussion may yet be pulled into a broader macro narrative. Keeping an eye on flows in two-year notes and the five-year breakeven will give live clues.
In the meantime, order books are thinning around the 1.3350 zone. That doesn’t give traders much cushion if the move extends. We’d be watching for shifts in dealer positioning as more data comes in; any further drop could prompt fast moves, if stops are triggered below.
