Where we are: USD/CAD is currently trading at 1.3830, up 0.21% on the day and testing the upper end of its intraday range of 1.3790-1.3839. The pair is edging higher after consolidating near the 1.3800 level in the Asian and European sessions. The move puts USDCAD above Friday’s NY close.
What’s driving it: The Bank of Canada’s persistent easing bias, coupled with Governor Macklem’s recent comments citing tariff uncertainty and softer growth, continues to weigh on the Canadian Dollar. While the recent GDP print remained relatively strong at 2.5% MoM, inflation figures remain a concern at 7.1% YoY, giving the BoC room to maintain its dovish stance. Firm WTI crude prices, up almost 1% at $89.79, are providing only limited support. The DXY is firmer at 99.06, contributing to the USDCAD bid.
- The Bank of Canada held rates steady at 2.75% at its last meeting, but explicitly flagged tariff risks as a key concern, creating an overhang for CAD.
- Canada’s 2s10s curve is relatively steep at +63bp, but the absolute level of Canadian yields remains low compared to the US, with the US-CA 10Y spread at +102bp favouring USD.
- Speculative positioning in CAD is modestly short, but not at an extreme level (52nd percentile), suggesting limited squeeze potential.
NY session focus: Today’s key event risk centers on the US ISM Manufacturing PMI at 10:00 ET. A strong print above the forecast of 53.3 could further buoy the USD and pressure USDCAD higher. FOMC Member Powell’s speech at 20:30 ET could also offer further insights into the Fed’s outlook and impact USD. Watch for a break above 1.3840, which could open the door to further gains. Conversely, a sharp risk-on move triggered by weak ISM data could see USDCAD test 1.3750. The pain trade here is a surprisingly hawkish shift from the BoC priced in quickly, sending USDCAD sharply lower.