Where we are: USD/CAD is currently trading at 1.3842, essentially unchanged on the day, but holding near the upper end of its 1.3837-1.3870 intraday range. The pair remains bid after breaking above 1.3800 earlier this week, driven by diverging central bank outlooks and continued softness in Canadian data. The level holds close to overnight highs as US session nears.
What’s driving it: The Canadian Dollar remains under pressure due to the Bank of Canada’s lingering easing bias and recent soft domestic data prints. Macklem’s comments following the April 16th meeting, citing tariff uncertainty and a softer growth path, continue to weigh on the Loonie. While the BoC has held rates steady at 2.75%, the recent slowdown in core inflation measures, as highlighted by Trading Economics, reinforces the possibility of future rate cuts, despite headline CPI holding at 7.1%. The 2s10s curve steepening to +59bp reflects markets pricing in cuts. We are watching the BOC Press Conference at 11:00 ET today.
- The BoC’s easing bias contrasts sharply with the US Federal Reserve, where resilient labor market data and firmer core inflation suggest potential for further rate hikes.
- The 100bp spread between US and Canadian 10-year yields continues to favor USD.
- Speculative positioning in the Canadian Dollar remains modestly short, with net non-commercial positions at -31,231 contracts, which is at the 77th percentile, suggesting limited room for further CAD weakness from positioning alone.
NY session focus: All eyes are on the 08:30 ET US data dump including Core PCE Price Index, Prelim GDP, and Unemployment Claims, which could fuel further USD strength if prints beat expectations. Key levels to watch for USD/CAD include 1.3870 (intraday high) as initial resistance, followed by 1.3900. Support lies around 1.3800 and then 1.3750. The BOC Press Conference at 11:00 ET will be closely monitored for any shift in tone regarding the outlook for rates. The prevailing trade is long USD/CAD on yield differentials, but a sharp fall in WTI Crude could amplify CAD weakness. The pain trade is a dovish surprise from the Fed combined with a hawkish tone at the BOC Press Conference.