Where we are: USDCAD is currently trading around 1.3715, testing the upper end of its recent range. The pair traded sideways overnight, contained between 1.3680 and 1.3730. This level is a touch weaker than the prior NY close, reflecting the continued headwinds facing the Canadian Dollar.
What’s driving it: The Canadian Dollar is under pressure due to the Bank of Canada’s dovish stance and lingering concerns about domestic economic growth. Macklem’s recent comments cited tariff uncertainty and a softer growth path as reasons to remain cautious, keeping the door open for potential easing. The recent CPI print of 7.1% YoY is above target, but the BoC seems more focused on domestic demand softness. The modest rise in WTI crude is providing only limited support, overshadowed by the domestic monetary policy outlook and a stronger USD.
- BoC Governor Macklem’s explicit easing bias, contingent on data, remains a headwind for the Loonie.
- Canada’s net employment unexpectedly fell by 17k jobs in April, pushing the unemployment rate to a six-month high of 6.9%, reinforcing BoC easing bets.
- Speculator positioning is modestly short CAD, but the net short has increased sharply in the last week, rising to the 83rd percentile. This increase in short positioning makes the Loonie vulnerable to a squeeze if sentiment shifts.
NY session focus: The focus for the New York session will be on the 08:30 ET US Retail Sales and Unemployment Claims releases. Strong US data could further boost the USD and pressure USDCAD higher, targeting 1.3750 initially, followed by 1.3800. Conversely, a weak print could offer some relief to the Loonie, with a potential pullback towards 1.3650. Watch for any headlines regarding US-China trade relations which could impact risk sentiment and influence oil prices. The pain trade for USDCAD is a significant drop in oil prices coupled with strong US data, driving the pair sharply higher.