Where we are: USD/CAD currently trades at 1.3839, a touch higher on the day after a tight overnight range of 1.3836-1.3854. The pair is holding just above its overnight lows. Price action suggests a mild bid to the USD, but volumes are light pre-NY data.
What’s driving it: Domestic headwinds continue to weigh on the Canadian Dollar. The Bank of Canada’s easing bias remains in place, with Macklem citing tariff uncertainty and a softer growth path at the last meeting. This is despite sticky CPI at 7.1% YoY. The drop in WTI crude to $91.10 is adding further pressure to the Loonie. While domestic yields are up slightly, the widening US-CA 10Y spread to +101bp favours USD strength.
- WTI crude’s 1.5% slide below $92 acts as a direct drag on CAD.
- The US-CA 10yr yield spread now exceeds 100bp, a key psychological level that should attract further USD buying.
- Speculative positioning is moderately short CAD (-68,882 contracts), yet the reading is only at the 52nd percentile, suggesting limited squeeze potential.
NY session focus: Focus today will be on the 10:00 ET JOLTS Job Openings release. Strong numbers could further support the USD and push USD/CAD towards the 1.3850 resistance level, and beyond towards recent highs near 1.39. A downside surprise could trigger a brief dip towards 1.38, but the overall bias remains tilted towards USD strength. The trade that’s working is to fade CAD rallies. The trade at risk is chasing USD/CAD lower on any dips. The pain trade is a sharp rebound in oil prices sparking a short squeeze in CAD.