Where we are: USD/CAD currently trades at 1.3825, up 0.29% on the day, testing the upper end of its intraday range of 1.3778-1.3830. The pair is breaking higher after consolidating around the 1.3800 level in early European trade. This move extends the recent weakness in the Canadian Dollar, bringing it to six-week lows.
What’s driving it: The Canadian Dollar is under pressure as domestic data continues to paint a softer picture. Macklem’s comments following the April 16th meeting indicated an easing bias contingent on data. The anticipated 08:30 ET GDP print is expected to show a further slowdown in m/m growth from 0.2% to 0.1%. Meanwhile, US economic resilience and expectations of further Fed hikes are supporting the US Dollar, magnifying the impact on USD/CAD.
- The Canadian 2-year yield has decreased by 4bp d/d to 2.789%, reflecting reduced expectations of further BoC rate hikes.
- WTI Crude is trading lower, currently at 87.28, down 1.59%, weighing on the commodity-linked Loonie.
- Speculators remain modestly short CAD, with net non-commercial positions at -31,231 contracts, leaving the currency potentially vulnerable to a short squeeze if incoming data surprises to the upside.
NY session focus: All eyes are on the 08:30 ET Canadian GDP m/m release. A downside surprise could trigger a further spike in USD/CAD toward 1.3850, while a print above 0.2% could see a retest of the 1.3775 level. Watch for DXY reactions around the 99.00 level, as any further strengthening will exacerbate CAD weakness. The trade that’s working is shorting CAD against USD. The trade at risk is fading this move too early. The pain trade is a surprise jump in Canadian GDP, triggering a sharp CAD rally and squeezing existing short positions.