Where we are: USD/CAD currently trades around 1.3680, holding steady after a relatively quiet overnight session. The pair remains within striking distance of its recent lows, having tested the 1.36 level last week. The near-term bias still favours a grind lower, but the market needs a fresh catalyst to break the 1.36-1.37 range decisively.
What’s driving it: The Bank of Canada’s cautious stance continues to weigh on the Canadian Dollar. Despite recent upside surprises in both CPI (7.0% YoY) and monthly GDP (2.6%), the BoC held rates steady at 2.75% at its last meeting, citing tariff uncertainty and a softer growth path. The central bank maintains an easing bias, with Governor Macklem’s tone later today crucial for near-term direction. WTI Crude trading near $100/bbl continues to offer the Loonie some underlying support, but the BoC’s dovish tilt is capping upside potential. A key consideration is that short CAD positioning is already elevated, sitting at the 79th percentile, raising the spectre of a short squeeze if Macklem sounds unexpectedly hawkish.
- BoC last held rates at 2.75% on April 16, maintaining an easing bias.
- Canada CPI printed 7.0% YoY in March, above the previous reading of 6.9%.
- Net non-commercial CAD positioning is modestly short, at -38,476 contracts, but the w/w increase and percentile reading suggest the market is already leaning bearish.
NY session focus: All eyes will be on BoC Governor Macklem’s speech at 15:30 ET. A hawkish tilt, emphasizing inflation risks or downplaying tariff concerns, could spark a significant CAD rally, targeting a break below 1.36 and potentially testing the 1.35 handle. Conversely, a reiteration of the BoC’s cautious approach would likely see USD/CAD drift higher, retesting the 1.37 level. Watch US Treasury yields for further cues; a continuation of the recent decline in US 2Y yields (currently at 3.88%) could amplify any CAD strength. The pain trade here is a hawkish Macklem triggering a violent short squeeze in CAD.