🥊 USD CAD Tug-of-War

March 11, 2025

Hello, my Friends!

🤯 Today, we’re turning our spotlight on the FX market - a realm buzzing with energy and dramatic twists.

📉 While stocks have been under pressure from USD assets, the real story unfolds in the tug-of-war over tariffs between the U.S. and Canada, fueling wild swings in the USD/CAD pair.

💼 This is among the most liquid and actively traded by the world’s leading banks and institutions.

On the technical front, the USD/CAD pair has been trading around COVID-era levels of 2020.

This signals a persistent weakness in the Canadian dollar, a trend that has eroded its value over recent years.

Tending Headline

With trade disputes heating up, understanding these shifts is more crucial than ever.

Lessons from the Trenches⚒️

When uncertainty reigns, smart hedging strategies come into play, offering a proactive route to safeguard your finances.

  • Options grant you the right, but not the obligation, to exchange currency at a pre-set rate. This means you can protect against adverse moves while still capturing the upside when the market favors you.

Real life scenario:

  • Imagine a Canadian tech firm that exports software licenses to the U.S. With trade negotiations throwing uncertainty into the mix, the firm faces exposure to unpredictable USD fluctuations.

  • The Solution: To combat this, the company bought currency options to lock in a minimum exchange rate for its USD revenue. If the USD weakens, the options kick in to offset the drop. But if the USD strengthens, the firm can simply let the options expire, enjoying the benefits of favorable rates.

Hedging is a defensive tactic companies can use to protect their profit margins and stay ahead of market uncertainty. Whether you’re an investor or a business owner, understanding these strategies can help you navigate the FX landscape with confidence.

Partners🤝

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Until next time,
Steve B
Founder, The Daily Impulse

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