Where we are: USDCAD is currently trading around 1.3715, testing the upper end of its overnight range. This level marks a modest extension from the prior NY close, with resistance building at the 1.3730 level. Overall, the pair is showing signs of upward momentum, particularly after consolidating around the 1.3650 mark earlier in the week.
What’s driving it: The Canadian dollar is facing headwinds from the Bank of Canada’s (BoC) continued easing bias, even as recent domestic data offers a mixed picture. While monthly GDP surprised to the upside at 2.6%, inflation remains stubbornly above target at 7.1%, but Macklem’s comments following the last meeting on April 16th highlighted ongoing concerns about tariff uncertainty and a potentially softer growth path, keeping the door open to future rate cuts. Rising US yields are adding additional pressure, with the US 2Y yield hovering around 3.98%, making the greenback more attractive relative to the Loonie.
- BoC Governor Macklem has explicitly stated that further easing is data-contingent, hinging on domestic demand softness and inflation trends.
- CFTC data reveals a modestly short net non-commercial CAD position of -14,659 contracts, albeit at the 83rd percentile, suggesting some potential for a short squeeze if the narrative shifts.
- The weaker Canadian labor market reported in April, with a 17k job loss and unemployment rising to 6.9%, continues to weigh on sentiment despite the robust GDP figure.
NY session focus: With no major Canadian data releases scheduled today, the focus will remain on US dollar dynamics and broader risk sentiment. Keep an eye on any developments in the WTI crude oil market, given its historical correlation with the Canadian dollar. Key levels to watch are 1.3680 for support and 1.3750 for resistance; a break above this could trigger further CAD weakness. The trade that’s working is short USDCAD on dips to 1.3680 but the trade at risk is long USDCAD without a break of 1.3750. The pain trade for USDCAD would be a sharp rally in oil prices, forcing a rapid short squeeze on existing CAD shorts.