Canada under the crosshairs: threats without results

USD/CAD

Key zone: 1.3600- 1.3750

Buy: 1.3800 (on strong positive fundamentals) ; target 1.3950; StopLoss 1.3740

Sell: 1.3600 (after correction to 1.3650) ; target 1.3450; StopLoss 1.3670

The final trading week of January is taking place in a mode of heightened nervousness. In focus are U.S. macro data, the Fed meeting, tech sector earnings, and another round of White House trade rhetoric toward its neighbors.

In the morning, S&P 500 futures opened down 0.75% to the level of 6850 points. The market failed to fully price in the sharp shift in the Trump administration’s rhetoric on Greenland. At the same time, pressure on Canada is intensifying — this time in the context of its trade contacts with China. The topic becomes especially sensitive ahead of the next Bank of Canada interest rate decision.

On Saturday, Trump stated he was ready to impose tariffs of up to 100% on Canadian goods if Ottawa continues implementing the new agreement with the PRC. In Washington, it is interpreted as a potential mechanism to bypass U.S. restrictions and subsequently dump on the U.S. market. According to the White House version, Canada risks turning into a “transit zone” for Chinese exports.

Apparently, the additional political backdrop and Donny’s nervousness were formed by disagreements and the speech of Canadian Prime Minister Mark Carney in Davos. A review of the USMCA trade agreement is expected in July, making the current rhetoric part of a broader trade war.

Carney calmly rejects all accusations, emphasizing that Canada is not planning a free trade agreement with China, and that the current talks concern adjustments to existing parameters and dispute resolution. In particular, this refers to reducing tariffs on Chinese electric vehicles from 100% to 6.1% and reciprocal easing of tariffs on Canadian agricultural products.

At the same time, the United States remains Canada’s key trading partner: more than 70% of exports.

This is why the negative impact is primarily reflected in export sectors — commodities and industrial products: auto components, metallurgy, lumber, logistics. For some U.S. producers, an import substitution effect is possible, but at the supply-chain level this more often leads to higher costs and margin pressure.

Key Market Triggers

• official statements from the White House and the U.S. Treasury, including product lists, exemption procedures, and transition periods;
• comments from the Bank of Canada and details of the Canada–China tariff and quota mechanisms — the higher the legal specificity of re-export controls, the lower the probability of a hard scenario and the faster the market will “sell volatility”;
• CAD dynamics as a commodity currency: when tariff rhetoric coincides with a correction in WTI or a deterioration in global risk appetite, the reaction may be sharply speculative.

What Matters for the Trader

• In tariff conflicts, the market reacts not to the fact of duties themselves, but to the probability of their implementation and the speed of escalation. The threat of a 100% tariff is the upper bound of pressure, aimed at revising deal parameters and strengthening origin controls, rather than a base-case scenario.
• CAD is sensitive to any signals of deterioration in trade conditions with the U.S. Rising uncertainty widens the USDCAD range and increases the cost of option hedges (implied volatility).

At the current stage, the conflict remains in the sphere of verbal interventions. However, a shift from statements to real measures would sharply increase the risk of a slowdown in Canadian exports and investment, which would strengthen expectations of a more dovish policy path from the Bank of Canada.

So we act wisely and avoid unnecessary risks.

Profits to y’all!