Where we are: USD/CAD is currently trading at 1.3815, consolidating recent gains after a choppy overnight session. The pair is holding above Friday’s NY close of 1.3807, but momentum is stalling as WTI struggles to sustain its earlier rally. Initial resistance lies around 1.3830, with support around 1.3780.
What’s driving it: The Canadian Dollar is facing headwinds as the Bank of Canada’s easing bias, while data-contingent, remains in play. Macklem’s prior comments citing tariff uncertainty and a softer growth path are keeping rate cut expectations alive despite a slightly hotter CPI print of 7.1% YoY. While stronger monthly GDP (2.5%) offers some support, it’s failing to offset concerns about domestic demand softness and persistent inflationary pressures. The rise in US 10Y real yields is contributing to broader USD strength, weighing further on the Loonie.
- BoC Governor Macklem explicitly cited tariff uncertainty and a softer growth path as reasons to maintain an easing bias.
- Net non-commercial CAD positioning remains modestly short (-31,231 contracts) suggesting limited room for a squeeze even with a bullish surprise.
- WTI crude, despite a 3% rally last week, has failed to break convincingly above $115, curbing the usual CAD tailwind.
NY session focus: Keep an eye on risk sentiment as gauged by the VIX. A further drop below 16 could weigh on the USD and offer CAD some respite, though a broader risk-off move would likely exacerbate Loonie weakness. Look for any further clarification on the BoC’s thinking, even though the next meeting is not until June 4th. Any upside surprise to US data releases would likely pressure CAD further. The pain trade here is a hawkish BoC repricing on stronger-than-expected US data, forcing a short squeeze in CAD.