Canada and the United States have a long-standing trade relationship, with billions of dollars in goods and services crossing the border every year. However, this relationship has recently faced increased tension as both countries have introduced tariffs and other trade restrictions. The United States has imposed tariffs on a range of Canadian products, while Canada has responded with tariffs on American goods. These measures are intended to protect domestic industries, address trade concerns, and strengthen each country’s economic position, but they can also increase costs, disrupt supply chains, and create uncertainty for businesses, investors, and consumers. Because the Canadian and U.S. economies are deeply interconnected, changes in trade policy can have meaningful effects across sectors and financial markets.
In the balance of this week’s Equity Leaders Weekly, we will use this evolving tariff environment to look at three market relationships and levels that may help advisors navigate potentially more challenging times. We are not attempting to predict what happens next. Instead, the objective is to arm advisors with specific levels to watch and establish lines of discrimination that can help distinguish between normal market volatility and a more meaningful change in market conditions. We will examine the CAD/USD currency exchange rate, the TSX relative to the S&P 500, and Canadian small-cap stocks relative to Canadian large caps. By tracking these relationships, we can look for changes in relative strength, leadership, and investor sentiment. The goal is to create a disciplined framework that helps advisors recognize when the market is confirming or challenging the prevailing environment—and, most importantly, to provide observable levels that can guide decision-making rather than relying on forecasts.
Currency: The Stock Price of a Nation
There are plenty of possible connections behind a move in USD/CAD: oil and commodity prices, interest-rate differentials, relative economic growth, fiscal and monetary policy, trade relations with the United States, and periods of global risk aversion. History gives us several examples where the Canadian dollar weakened sharply, including the move toward $1.60 in the late 1990s and early 2000s and subsequent tests of the $1.45 area in 2016, 2020 and 2025. The challenge is that these episodes were driven by very different combinations of factors, making it difficult to establish a single causal relationship or a reliable fundamental level for USD/CAD. Rather than forcing a fundamental explanation onto every move, the more useful approach is to let the market establish the relationship for us. Think of a currency as the stock price of a nation: its price reflects the collective judgment of global participants about the relative attractiveness, strength and prospects of one economy versus another. The point-and-figure chart gives us a framework for doing exactly that. It allows us to identify important price levels, observe whether USD/CAD is establishing a pattern of higher highs and higher lows or failing to do so, and determine whether the current environment is becoming more significant. The macroeconomic connections can create ambiguity; price action gives us something observable to test. The objective is not to predict where USD/CAD should go, but to watch what it actually does.
The 2025 trading range provides our first important lines of discrimination. A breakout above $1.4242 might signal renewed strength in the U.S. dollar relative to the Canadian dollar, while a breakdown below $1.3416 might indicate meaningful Canadian-dollar strength. Stepping back further, the 10-year trading range gives us an even larger framework, with $1.4673 to the upside and $1.2025 to the downside. These levels could carry considerably greater significance if tested and broken. Our current SIA versus SMAX score of 3 is favoring the Canadian dollar, providing another relative-strength measure to help determine whether the market is confirming or challenging the broader narrative. Oil may also become an important variable. Earlier this year, higher oil prices generated significant incremental demand for U.S. dollars as foreign buyers required more dollars to settle energy purchases. If oil moves materially higher again, it will be worth watching whether that dynamic re-emerges—or whether the Canadian dollar begins to capture more of the benefit typically associated with stronger commodity prices. Together, these levels and relationships give advisors something concrete to monitor without requiring a forecast: the market establishes the signal, and the levels tell us when it matters.
Measuring the Resilience Gap
One might immediately think that smaller Canadian companies should be more vulnerable to the tariff shock than their larger counterparts. With less financial flexibility, fewer supply-chain alternatives, weaker pricing power and potentially greater dependence on individual customers or markets, smaller businesses may have less capacity to absorb a prolonged period of trade uncertainty. But that assumption deserves to be challenged. The available evidence does not clearly establish that smaller companies are more directly exposed to tariffs, and differences in sector composition can also have a significant influence on small- versus large-cap performance. The more important question, then, is whether a resilience gap actually develops. If tariffs are creating a meaningful disadvantage for smaller companies, we should eventually see it reflected in relative earnings, margins, balance sheets and, ultimately, share prices. For now, the resilience gap is a hypothesis rather than a conclusion, and our approach is to watch the price action first and then look for fundamental evidence that either confirms or challenges what the market is telling us.
The relationship charts give us two important ways to measure whether Canadian equities are demonstrating resilience or beginning to show stress. First, consider the TSX versus the S&P 500. The S&P 500 is up 12.15% year-to-date and 19.23% over the past year, while the TSX Composite is up 16.54% year-to-date and 31.20% over the past year. On an absolute-performance basis, Canada has clearly been the stronger market. However, our current TSX versus S&P 500 SMAX score is only 1 in favor of the U.S. market, suggesting that the relative-strength picture is not nearly as decisive as the headline returns might imply. This is precisely the type of relationship worth monitoring as the tariff environment develops.
The second relationship is Canadian small caps versus Canadian large caps, and here the numbers are striking. Small caps are up 22.99% year-to-date versus 16.48% for large caps, while over the past year small caps are up an impressive 49.29% compared with 29.73% for large caps. That performance is difficult to reconcile with the simple assumption that smaller companies should automatically be the biggest victims of tariff uncertainty. For now, the market is telling us that Canadian small caps are demonstrating considerable resilience. That does not mean the trend will continue, nor does it prove that tariffs will have little impact. It simply establishes our starting point. If the resilience gap begins to reverse, price action should provide an observable signal for us to investigate. Our job is not to predict that reversal; it is to know which relationships and levels will tell us when it is happening.
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