Where we are: USDCAD is trading around 1.3660, consolidating after yesterday’s choppy session. The pair has largely traded within a tight 1.3640-1.3680 range overnight, and sits slightly above its prior NY close. Key resistance remains around the 1.3700 handle, while support is eyed near 1.3620.
What’s driving it: The Canadian Dollar’s direction hinges on today’s domestic Retail Sales data at 08:30 ET. The Bank of Canada’s dovish tilt, cemented by Macklem’s April comments highlighting tariff uncertainty and a softer growth path, continues to weigh on the Loonie. While headline CPI at 7.1% remains well above target, the BoC’s emphasis on underlying price pressures keeps the door open for potential easing, especially given the still-solid but slightly decelerating Monthly GDP growth. Rising WTI crude prices offer some support, but the potential for tariff pass-through continues to create headwinds.
- The BoC’s April decision to hold rates at 2.75% despite elevated inflation, with Macklem explicitly referencing downside risks, signaled a high bar for hawkish surprises.
- Speculator positioning remains modestly short CAD, offering limited room for further downside extension unless data materially deteriorates; squeeze risk is low given that the net-short positioning is around the 79th percentile of its 52-week range.
- The narrowing 2s10s spread in the US, currently at 0.49%, signals a potential slowdown in the US which would pressure Canadian growth and the CAD.
NY session focus: All eyes are on the 08:30 ET release of Canadian Retail Sales and Core Retail Sales. Stronger-than-expected prints could provide a short-term boost to the Loonie, potentially pushing USDCAD below 1.3620. Conversely, a miss could exacerbate easing concerns and send the pair towards 1.3700. The 10:00 ET release of Revised UoM Consumer Sentiment could introduce some noise, but the primary focus remains squarely on Canadian data. The trade that’s working is fading rallies above 1.3700; the trade at risk is shorting CAD aggressively into positive data surprises. The pain trade is a hawkish repricing of BoC expectations driven by surprisingly strong Canadian data.