Royal Bank of Canada (RBC) analysts say tariff changes, higher energy prices and CUSMA renewal talks are affecting Canada’s macro outlook, with knock-on effects for the Canadian Dollar (CAD). They expect March trade data to be helped by stronger net energy exports.
They add that monthly trade figures may be skewed by the timing of tariff announcements. They also say the US tariff rate on imports from Canada was likely less affected than most other countries after February changes in US tariff policy following a US Supreme Court ruling against IEEPA tariffs.
Energy Prices And Trade Balance
RBC notes a spike in energy prices linked to conflict in the Middle East, which it says should lift Canada’s net energy trade balance. It also says higher energy prices will increase costs for consumers.
The bank says trade uncertainty continues as CUSMA renewal negotiations are set to intensify in the coming months. It outlines a base-case view that 2026 will bring a more stable international trade environment, although tariff rates are still expected to be at higher levels.
RBC also points to earlier Bank of Canada (BoC) rate cuts and planned fiscal spending as factors that could support per-person and per-worker economic conditions in 2026. The article notes it was created with the help of an AI tool and reviewed by an editor.
With WTI crude prices holding firm around $95 a barrel, the positive impact on Canada’s net energy exports is becoming clear. We just saw this in the February 2026 trade data from Statistics Canada, which showed the surplus widening on the back of strong energy receipts. This provides a fundamental tailwind for the Canadian dollar that is hard to ignore in the short term.
Market Positioning And Hedging
The economic support from policies enacted last year is also becoming more visible, creating a more stable environment than what we saw in 2025. The Bank of Canada’s series of interest rate cuts, which brought the overnight rate down to 3.75% in 2025, are now stimulating domestic demand. This, combined with planned fiscal spending, is helping to improve underlying economic conditions.
The most significant factor for derivative pricing in the coming weeks, however, is the upcoming CUSMA renewal negotiations. Implied volatility on USD/CAD options has been steadily climbing ahead of the first round of formal talks scheduled for May. This suggests the market is bracing for sharp moves based on headlines from the negotiations.
Given the strong energy backdrop but high political risk, we see merit in strategies that offer upside exposure to the Canadian dollar while defining risk. For instance, bull call spreads on CAD allow for participation in currency strength driven by economic fundamentals. This structure also provides a built-in cap on potential losses should the trade negotiations create unexpected headwinds.
