Where we are: USD/CAD is trading at 1.3625, a marginal uptick of 0.01% on the day, holding near the upper end of its intraday range of 1.3604-1.3630. The pair is consolidating after a strong run that has seen it test levels not seen since early March, supported by broad dollar strength. With the European session winding down and US data imminent, USD/CAD is positioned for potential volatility.
What’s driving it: The Bank of Canada’s slightly less dovish stance continues to underpin the Canadian Dollar. Governor Macklem’s recent comments citing tariff uncertainty and a softer growth path, while holding rates steady at 2.75%, also left the door open for potential hikes if energy prices sustain inflationary pressures. Weaker WTI crude prices, down nearly 2% at $103.31, are offsetting some of that support, adding a headwind as oil is typically a key CAD driver. Dollar strength, reflected in the DXY’s rise to 98.26, is further complicating the picture, driving USD/CAD higher despite the BoC’s hawkish lean.
- Canada’s latest CPI print of 7%, a slight increase from the prior 6.9%, underscores the inflationary challenge facing the BoC.
- The US-Canada 10-year yield spread sits at +81bp, favouring the dollar and creating a tailwind for USD/CAD.
- CFTC data shows net non-commercial CAD positioning modestly short at -38,476 contracts, leaving room for a potential squeeze if the Loonie catches a bid.
NY session focus: The 10:00 ET release of US ISM Services PMI, JOLTS Job Openings, and New Home Sales will be the primary focus for USD/CAD traders. Strong US data could fuel further dollar strength, pushing USD/CAD towards 1.3650 and potentially triggering a test of the March highs. Conversely, a soft print could see the pair retreat towards 1.3580, testing intraday support. The trade at risk is a short-CAD position predicated on continued oil strength; the working trade is to fade dips given the current macro dynamics. The pain trade for USD/CAD is a dovish repricing after the US data and a surprise recovery in oil prices, which would fuel a rapid CAD rally.