Where we are: USD/CAD is currently trading at 1.3671, modestly lower on the day, but holding above the overnight low of 1.3661. The pair remains within yesterday’s range and continues to consolidate below the recent high of 1.3695. This level is key to watch as a break above could signal further upside.
What’s driving it: The Canadian dollar remains pressured by the Bank of Canada’s dovish stance. While the overnight rate is steady at 2.75%, Macklem’s comments following the April decision highlighted tariff uncertainty and a softer growth path, keeping the easing bias alive. This contrasts with expectations that the Federal Reserve could keep interest rates elevated for longer given stronger-than-expected US labor data as evidenced by the US 10Y yield sitting 87bp above its Canadian counterpart. Headline CPI at 7.1% YoY is also a key factor preventing a more hawkish outlook despite the recent strong GDP MoM print of 2.6%.
- BoC is holding rates steady at 2.75% but maintains an easing bias, citing tariff uncertainty.
- Canada’s CPI remains above target at 7.1% YoY.
- Speculative positioning is modestly short CAD, at the 83rd percentile, suggesting limited room for further short positions and vulnerability to a squeeze if sentiment shifts.
NY session focus: All eyes will be on risk sentiment as US equities attempt to build on Friday’s gains. Key levels to watch in USD/CAD include 1.3660 as initial support and 1.3700 as immediate resistance, above which the path to 1.3750 opens. The trade that’s working is fading rallies in USD/CAD, betting on the BoC’s dovish stance. The trade at risk is being short CAD if oil prices continue to rally. The pain trade for USD/CAD would be a hawkish surprise from the BoC or a significant correction in crude oil prices.