Where we are: USD/CAD currently trades around 1.3610, holding onto gains made this week. The pair traded in a tight overnight range, consolidating just below the March highs. The price remains significantly below last Friday’s NY close, reflecting ongoing Canadian Dollar strength.
What’s driving it: The primary driver remains the disconnect between the Bank of Canada’s still-dovish stance and persistent inflationary pressures. While Governor Macklem, in his remarks on Wednesday, maintained an easing bias, the market is increasingly pricing in the possibility that the BoC may be forced to reconsider its policy path if elevated energy prices continue to fuel inflation. This is amplified by yesterday’s broad dollar weakness. The rising US 10Y real yield is a headwind for commodities, but is currently being offset by crude strength.
- The Bank of Canada held its overnight rate at 2.75% on April 16th, citing tariff uncertainty and a softer growth path, but the market is looking through this dovishness given crude oil near $100/bbl.
- Canada’s CPI-trim YoY (BoC core) for March printed at 2.6%, a notable increase from the prior 2.4%, indicating sticky inflation.
- Speculative positioning remains modestly short CAD, leaving room for a squeeze if bullish momentum continues.
NY session focus: Traders will be closely watching the 10:00 ET release of the ISM Manufacturing PMI and ISM Manufacturing Prices. A stronger-than-expected ISM print could provide a boost to the US Dollar, potentially triggering a USD/CAD bounce back toward 1.3650. A weaker ISM, coupled with continued strength in WTI crude, could push USD/CAD down to test support around 1.3580. The current trade favours fading USD/CAD rallies, but is at risk if the US data surprise to the upside. The pain trade for USD/CAD would be a sustained break below 1.3550, opening the door to further CAD appreciation.