Where we are: USDCAD traded near 1.3730 into the London close on Friday, consolidating recent gains. Overnight action saw a brief dip to 1.3715 before a modest rebound, leaving it largely flat versus the prior New York settlement. We’re watching to see if the 1.3750 resistance level, tested earlier this week, can be breached as US data looms.
What’s driving it: The Bank of Canada’s decidedly dovish stance, even with inflation hovering near 3%, continues to weigh on the Canadian Dollar. While the BoC is looking through near-term energy price impacts, the recent Q1 GDP contraction and elevated unemployment paint a picture of economic slack that argues against aggressive tightening. This domestic backdrop is amplified by the sharp pullback in WTI crude prices, a key driver for CAD sentiment. The market is pricing a BoC hold through October, with only a 25bp hike priced for December, a stark contrast to the Fed’s more hawkish leanings.
- Bank of Canada holding the overnight rate target at 2.25% for the fifth consecutive meeting, signalling a bias towards a two-way hold.
- Canada CPI YoY at 6.6% (prior 7.1%) and Monthly GDP MoM at 2.5% (prior 2.6%) show a cooling inflation trend and resilient, albeit slowing, economic activity.
- Net non-commercial positioning in Canadian Dollar futures shows a crowded short at -119,999 contracts, indicating significant squeeze potential on positive surprises.
NY session focus: The primary focus will be the 08:30 ET US macro data releases, particularly the retail sales and industrial production figures. Given the BoC’s current dovish bias and the market’s pricing for a December hike, any signs of US economic resilience or hawkish Fed commentary will likely see USDCAD push higher. Conversely, weaker US data could offer the Loonie a reprieve, potentially testing the 1.3700 handle. The trade that’s working is long USDCAD on any US data strength. The trade at risk is a sudden reversal in WTI crude prices, which could provide a swift bid under CAD. The pain trade for this asset remains a sustained break above 1.3800 on persistent US dollar strength.