Where we are: USDCAD is trading near 1.3795, testing the upper end of its overnight range. The pair remains bid, a continuation of the trend seen in the last few sessions, and above yesterday’s NY close of 1.3760. Technical resistance looms around 1.3820, a level that has capped rallies in recent weeks.
What’s driving it: The Canadian Dollar is under pressure despite a decent bid in WTI crude, typically a CAD-positive factor. The primary driver is the Bank of Canada’s lingering easing bias, reinforced by softer-than-expected core inflation prints last month, as well as Macklem’s comments on tariff uncertainty. Even though headline CPI ticked up to 7.1% in April, the BoC seems inclined to look through energy-related inflation. Supporting the USD side, the rise in the US 2Y yield to 4.13% yesterday and 10Y yield to 4.67% continues to offer upside.
- The Bank of Canada held rates steady at 2.75% in April, citing tariff uncertainty despite sticky headline CPI.
- Speculative positioning remains modestly short CAD, with net non-commercial positions at -16,242 contracts, near the 79th percentile. A larger short base would argue for more caution on continued downside.
- Canada’s Monthly GDP printed at 2.5% in April, slightly lower than the prior 2.6%, a marginal signal of slowdown.
NY session focus: Today’s US data will be critical for USDCAD. The 08:30 ET releases of Philly Fed Manufacturing Index and Unemployment Claims could provide further impetus for USD strength if they surprise to the upside. Focus will shift to Flash PMIs at 09:45 ET. Watch for a break above 1.3820 which could open the way to 1.3850. Failure to break above 1.3820 will likely see a retest of 1.3750. The trade that’s working is fading CAD strength, anticipating further BoC dovishness relative to the Fed. The trade at risk is a sharp WTI correction that could squeeze USD/CAD shorts. The pain trade is a strong set of US macro data that pushes USDCAD above 1.39.