Where we are: USDCAD is trading at 1.3690, consolidating within a narrow range after a muted overnight session. The pair is hovering near the upper end of its recent range, still unable to decisively break above the 1.37 level. This is slightly weaker than Friday’s NY close, suggesting some mild profit-taking ahead of US data.
What’s driving it: The Canadian dollar is struggling to find a clear direction as markets grapple with the Bank of Canada’s (BoC) monetary policy outlook. Macklem’s recent hold at 2.75% cited tariff uncertainty and a softer growth path, keeping an easing bias alive, albeit a data-contingent one. The conflicting signals of sticky inflation (7.1% YoY) and robust GDP growth (2.6% MoM) are creating uncertainty around the timing of any future rate cuts. Firmer oil prices are providing some underlying support for the CAD, preventing a deeper slide but not enough to trigger a sustained rally.
- Macklem’s cautious stance is reinforced by the below-target headline CPI, creating space for potential easing if economic conditions deteriorate.
- However, the latest CPI print remains well above the BoC’s target, limiting the scope for aggressive rate cuts and highlighting the risk of tariff pass-through.
- Speculative positioning in the Canadian dollar remains modestly short, with net non-commercial positions at -16,242 contracts, suggesting limited potential for a major short squeeze despite positioning not being at an extreme (79th percentile).
NY session focus: The focus for the New York session will be on broader risk sentiment and any further clues regarding the Federal Reserve’s rate path. While there is no specific Canadian data release scheduled, any significant moves in WTI crude oil prices will likely impact the Loonie. Key levels to watch are 1.3650 as immediate support and 1.3730 as initial resistance. A sustained break above 1.3730 could open the door for a test of 1.38. The trade that’s working is a range-bound strategy, selling rallies near 1.37 and buying dips toward 1.3650. The risk to that trade is a sharp spike in oil prices or a significant risk-on move triggered by unexpected dovish signals from the Fed. The pain trade would be a sustained break above 1.38, forcing shorts to cover aggressively.