USD/CAD Market Update

Current Level: Upper-1.36s (24hr range 1.3660–1.3688)

USD/CAD is trading at 1.3678 this morning, roughly 8 pips firmer than yesterday's 1.3670 close as risk-off flows from a stalled Iran peace process lift oil and the broader dollar. RBC expects today's range at 1.3650 to 1.3715. Divergent flash PMI prints out of Europe have set up a clear fundamental contrast into next week's central bank cluster.

Market Overview:

Risk appetite is softer this morning as the Iran ceasefire stalemate drags into a second week and energy markets grind higher. Equity futures are pointing lower, with CIBC flagging early spillovers from the conflict in corporate earnings: American Airlines cut full-year guidance after absorbing roughly four billion US dollars in incremental fuel costs. Global bond yields are mixed with no major moves. The US dollar is firmer against the G10 basket, with high-beta currencies including the New Zealand dollar and Swedish krona underperforming. WTI is trading in the mid-90s per barrel per CIBC, with Brent above 103 dollars per RBC, keeping the geopolitical risk premium priced in and reinforcing the defensive bid in USD. CIBC notes WTI remains roughly 43 percent above pre-war levels, complicating the global inflation picture at precisely the moment central banks would prefer optionality.

Iran Stalemate Extends:

The ceasefire remains in place after President Trump clarified yesterday that it will hold until Iran presents a unified proposal to resume talks, but there is no obvious near-term catalyst for resolution. The US continues its naval blockade of Iranian ports, Iran continues to refuse negotiations while the blockade stands, and the key sticking point remains the reopening of the Strait of Hormuz. CIBC reports that Tehran fired on three cargo ships and seized two yesterday following the US blockade, while RBC notes regional production cuts now sit at roughly 12.5 million barrels per day with approximately 600 million barrels lost conflict-to-date. Proactive curtailments may come sooner to limit infrastructure risk, with significant restart risk that could constrain supply even after an eventual resolution. CIBC's strategists continue to target USD/CAD at 1.3500 by year-end on the view that once tensions ease and oil prices normalize, interest rate differentials will reassert themselves as the primary driver.

European Data Divergence:

Flash composite PMIs out of Europe this morning delivered a sharp split. The eurozone composite printed at 48.6 against a 50.1 consensus and a 50.7 prior, its first sub-50 reading in sixteen months per S&P Global, with services at 47.4 versus 49.8 expected. S&P Global flagged the sharpest surge in input cost pressures outside of the pandemic era, a stagflationary combination that is already forcing a rethink of the European Central Bank's path ahead of next Thursday's decision. The UK delivered the opposite surprise: flash composite PMI rose to 52.0 against a 49.9 consensus, with services at 52.0 versus 50.0 expected and manufacturing at 53.6 versus 50.3. However, S&P Global noted the biggest monthly increase in input prices since records began 28 years ago, suggesting UK firms are front-loading purchases ahead of expected price rises. Swap markets pulled forward Bank of England tightening expectations, with year-end pricing now implying around one and a half 25 basis point hikes.

Canadian Data/Outlook:

No domestic data today. RBC expects the Bank of Canada to hold at 2.25 percent next Wednesday with a tone tilted slightly hawkish relative to March, and expects the neutral rate review to confirm the 2.25 to 3.25 percent range. CIBC's Central Bank Watch prices zero probability of a hike and a 2 percent probability of a 25 basis point cut at the April 29 meeting. Tuesday's federal fiscal update precedes the decision; RBC expects no major spending shifts, with the bigger story being potential downside to Government of Canada bond issuance relative to the November plan of 298 billion Canadian dollars. The Canadian dollar's near-term tone continues to be set externally rather than domestically, with USD/CAD anchored to the 1.3645 level as oil and risk headlines drive the marginal bid.

Fed Watch:

CME FedWatch prices a near-certain hold at the 3.50 to 3.75 percent range on April 29. CIBC's Central Bank Watch shows zero probability of either a hike or a cut at the meeting, and RBC's forecast table holds the Fed funds upper bound flat at 3.75 percent through the fourth quarter of 2026. The Fed has entered its pre-meeting blackout period, so fresh commentary is limited through next Wednesday. Markets continue to price no meaningful policy move this year, with risks tilted toward an extended hold if core PCE remains firm and labor data holds up. Treasury Secretary Scott Bessent told a Senate committee yesterday that several Persian Gulf and Asian countries have requested foreign exchange swap lines with the US, framing the requests as a tool to maintain order in dollar funding markets, though there is little visible strain in cross-border dollar funding at current levels.

Technical Picture:

Resistance: 1.3730 (top of RBC's expected range and near-term cap), 1.3800 (secondary, CIBC's preferred re-entry short zone), 1.3855 (tertiary), 1.3930 (major resistance that has capped four separate rallies this year)
Support: 1.3645 (critical; has held five consecutive sessions per RBC; a decisive daily close below signals the USD bounce since late January has run its course), 1.3525 (first downside target), 1.3480 (subsequent target)
Outlook: RBC continues to favor selling USD/CAD on rallies into the 1.38 to 1.39 zone, with a one-to-three month target of 1.3750. CIBC notes the pair is sitting at the 200-week moving average, a level that has held since 2022, and views a confirmed breakdown as very bearish for price. With the pair in RBC's expected 1.3650 to 1.3715 range and 1.3645 holding for a fifth session, today's price action is likely to stay compressed unless an overnight headline breaks the standoff.

Week Ahead:

Wednesday's BoC and Fed back-to-back are both widely expected to hold, shifting the FX catalyst to Thursday's BoE, ECB, and US Core PCE cluster. Today's Eurozone contraction print raises the bar for the ECB to signal tightening conviction, while the UK's upside PMI surprise tilts the BoE meeting marginally more hawkish.

Other Notes:

• Warsh procedural hurdles persist. Senator Thom Tillis has reiterated he will block the nomination until the Justice Department ends its investigation of departing Fed Chair Powell, pushing the confirmation timeline into May at the earliest.
• CFTC Commitments of Traders data continues to show speculators crowded into shorts against the Canadian dollar, pound, yen, and Australian dollar. Any durable easing in Middle East tensions would likely trigger a short-covering rally across the G10 majors.
• Trade Minister Dominic LeBlanc signaled Canada will not concede on dairy supply management or French-language labelling rules when CUSMA renegotiations begin later this year, while acknowledging some US tariffs are likely to persist even under a deal.