USMCA Joint Review 2026: Why Washington's Refusal to Renew Is Pressuring the Canadian Dollar

On 1 July 2026 — the sixth anniversary of the agreement's entry into force — the United States, Canada and Mexico held the mandatory joint review of USMCA. Washington declined to confirm a 16-year extension, saying it "did not agree to renew the USMCA in its current form," while Canada and Mexico both backed renewal. The deal is not dead; it stays fully in force. But instead of a clean 16-year runway to 2042, North America's trade pact now enters an annual review process that recurs every year to 2036. For the Canadian dollar, that is a slow-burn fundamental story — and the loonie has already felt it, sliding about 2.9% in June for its worst month since October 2024.

This is a textbook case of why a fundamental currency-strength read beats a price-only one. A chart shows you the loonie fell. It cannot tell you the move is being driven by open-ended trade uncertainty flowing through Canada's growth outlook, its rate path, and its risk premium — three of the five factors PIPTHEORY scores — rather than by a single oil tick. Trade policy doesn't move a currency directly; it moves it through channels. Here is the map.

What actually happened on July 1

USMCA — known as CUSMA in Canada and T-MEC in Mexico — replaced NAFTA and entered into force on 1 July 2020. Uniquely among major trade deals, it carries a built-in "sunset" mechanism: Article 34.7 requires the three parties to conduct a joint review on the sixth anniversary and, at that point, to decide whether to extend the agreement for a further 16 years.

On 1 July 2026, the Free Trade Commission held that review. The United States, through its Trade Representative, declined to confirm the 16-year extension, taking the position that it would not renew the agreement in its current form. Canada and Mexico each confirmed their support for extending. Because a joint extension requires all three, the absence of agreement did not terminate anything — it activated the fallback in Article 34.7.4: an annual review, conducted every year until the parties either agree to extend or the agreement reaches its expiry on 1 July 2036.

The practical read is subtle but important. The agreement remains fully in force, and the 16-year extension is not off the table — it can still be confirmed in writing by the three heads of government at any time. What changed is the calendar of uncertainty: instead of resolving the question for a generation, North America now re-opens it annually. Markets do not like open-ended timelines, and currencies price uncertainty even when nothing concrete has broken yet. Reputable coverage of the decision is available from Al Jazeera and the primary process detail from the Office of the US Trade Representative.

How trade policy reaches a currency: through fundamentals, not headlines

A trade agreement is not a line on a price chart. It shapes a currency through the same fundamental channels that drive every macro move — and separating those channels is exactly what a currency-strength model is built to do. For Canada, three of the five factors are in play at once:

• Growth. Roughly three-quarters of Canada's goods exports go to the United States. Prolonged uncertainty over tariffs and market access chills business investment — companies delay building the plant or signing the supply contract when the rules might change next year. That is a direct drag on the growth outlook, and growth is a core fundamental input.
• Interest rates. A softer growth path keeps the Bank of Canada cautious. The BoC has held its policy rate at 2.25%, while the Federal Reserve sits at 3.50–3.75% with a hawkish tilt after Chair Kevin Warsh's first meeting. That gap — and the fact that Canadian bond yields have fallen further below US yields — is a classic carry headwind for the loonie.
• Risk sentiment. Trade-policy uncertainty raises the risk premium attached to Canadian assets. CAD is a pro-cyclical, risk-sensitive currency; an overhang of unresolved tariff questions makes it less attractive at the margin, all else equal.

The loonie's June: the price of uncertainty

The market did not wait for the outcome. Through June, the Canadian dollar weakened about 2.9%, which stands as its steepest monthly decline since October 2024, with USD/CAD trading near 1.4205 — roughly 70.4 US cents — around the review deadline. Reuters attributed the slide in part to Canadian bond yields falling further below their US counterparts, a rate-gap dynamic layered on top of the trade overhang.

What makes this instructive is what didn't drive it. Canada's economy actually surprised to the upside: GDP rose 0.5% in April, the largest monthly expansion in nine months, easing fears that tariffs were tipping the economy into a deeper slowdown. Under a price-only lens, a firming economy and a falling currency look contradictory. Under a fundamental lens they reconcile cleanly — the growth data was constructive, but the rate gap and the forward-looking trade uncertainty were the dominant channels, and they pulled the other way.

Not (mainly) an oil story this time

The Canadian dollar is the textbook petro-currency among the majors — energy is a major export and crude prices are always part of the CAD picture. So the instinct is to explain any loonie move through oil. Right now, that instinct misleads.

The dominant drivers are the BoC–Fed rate gap and trade-policy uncertainty, not crude. This echoes the late-June move we covered in the loonie's one-year low, where the rate gap — not oil — was doing the work. It is the mirror image of the Iran-ceasefire oil shock, where crude was the channel. The value of scoring factors separately is precisely that you can tell which one is in charge on any given day, instead of blending oil, rates and trade into one hard-to-read line.

What's actually being negotiated

Canada's stated priority in the process is US sectoral tariffs — on steel, aluminum, autos and lumber. Canada–US Trade Minister Dominic LeBlanc said the parties "agreed on the importance of continuing our discussions," signalling that dialogue continues even without a headline extension. The next bilateral negotiating round on the calendar is between the US and Mexico, scheduled for the week of 20 July in Mexico City; Canada participated in the 1 July Commission meeting but has not yet moved into substantive text-based negotiations.

For the currency, the distinction between sectoral tariffs and broad tariffs matters. Most USMCA-compliant trade continues to flow duty-free, so this is not a wholesale return to pre-NAFTA barriers. But sectoral tariffs land on some of Canada's largest and most visible export categories, and — crucially — the annual-review structure means the threat of escalation is now a standing feature rather than a one-time negotiation. That standing threat is what keeps the risk premium elevated.

What to watch from here

Because the driver here is uncertainty rather than a single fixed outcome, the loonie's path depends on how the process unfolds — and each step is a fundamental input that will move the growth, rate and risk factors before it shows up cleanly on a price chart.

The takeaway

The USMCA joint review is a slow-motion macro event, and that is exactly why it belongs on a fundamental radar rather than a price screen. Nothing "happened" to Canadian trade on 1 July in the sense of a tariff switching on — yet the loonie had its worst month since late 2024, because markets price the shape of uncertainty, not just its resolution. Trade policy travelled into CAD through growth, through the rate gap, and through the risk premium — three of the five factors that a currency-strength model scores separately. Read the channels, and a "trade headline sinks the loonie" story stops being a vague narrative and becomes a legible map of cause and effect.

To learn how PIPTHEORY builds its fundamental currency-strength scores from five factors, see the methodology overview.

Educational macro context only — not investment advice.