simple. Buy Crude Oil. Crude is pegged to the USD hence inversely correlated. Exit the trade when the peg is removed. As a Canadian trader you should have your account denominated in CAD. Otherwise get another broker who is able to do that.
Could you elaborate on this, I don't get it? I understand that the individual hedge will follow a stochastic process but so will the value of the trading account. Therefore the net effect i.e hedge payoff, should be linear?
No. Most brokers use 1:50 margin for forex. So shorting $35k worth of USD will use 2% margin = $700 margin.
I called Interactive Brokers and they say I'm being charged 6% for my USD short... now this makes no sense for my hedge if I'm paying 6% a month on 40k
You are charged the ANNUAL INTEREST rate differential between the currency you're short and the one you're long. I am not sure what the carry is between CAD and USD but I doubt it's not 6% annually and definitely not MONTHLY! Of course, it can also mean you could receive interest depending on the carry. 6% sounds about right for 1 year out USD puts 1 year out. But not for Forex spot long/short hedging. Did they quote you option prices?
I called IB again and they said they charge 6% per year for the USD short... the hedge doesn't make much sense if I'm already 6% in the hole
If you are a daytrader or short-term trader, then just sell your USD for CAD. If you need USD in your account for some reason (e.g. you hold US stocks long-term) then use the CAD futures on the CME to hedge your exposure. After that, just make sure to convert your profits whenever they reach like $10k.