USD/CAD Market Update

Current Level: Upper-1.36s (24hr range 1.3678–1.3714)

USD/CAD is trading at 1.3684 this morning, roughly 16 pips softer than yesterday's 1.3700 close as a broad-based US dollar pullback against the G10 partially unwinds yesterday's war-induced bid. The pair is pinned inside RBC's expected 1.3645 to 1.3715 range, with 1.3647 support holding for a sixth consecutive session and a fast-moving equity rally in semiconductors setting the risk tone into the weekend.

Market Overview:

Risk appetite is firmer to close the week as equity markets open higher on the back of blowout chipmaker earnings. The US dollar is slightly weaker against the G10 basket, giving back most of yesterday's war-induced gains as markets rotate back into risk. Global bond yields are mixed with no major moves. WTI is trading around $95 per barrel per CIBC, keeping a geopolitical risk premium embedded in energy markets even as risk assets rally. The dollar index is bouncing off the 98 area and looking to snap a three-week losing streak, but follow-through has stalled in the absence of fresh escalation headlines.

Semiconductor Melt-Up Drives Risk-On:

Equity markets are firmly higher this morning with the focus squarely on the chipmakers after Intel's blowout quarter. Intel's earnings crushed expectations as AI and data center demand finally showed up in reported numbers, and CIBC flags that the US government's September stake in the company, taken at roughly $20 per share, now represents over $37 billion in paper gains, more than four times the original investment. The semiconductor index is on track for its eighteenth consecutive up day, surpassing the prior record of fifteen set in 2014. CIBC's desk is on alert for bubble dynamics but distinguishes today's backdrop from 2000, noting real end-demand and stronger fundamentals. For FX, the stronger risk tone is pulling flow back into pro-cyclical currencies and limiting USD upside, but the move is competing with a still-live geopolitical backdrop.

Iran Stalemate, Tariffs Back on the Docket:

The US-Iran backdrop remains unresolved, with the Strait of Hormuz still effectively closed to commercial traffic and no meaningful progress on reopening the shipping lane. With roughly 20 percent of global oil flows routed through Hormuz, the disruption continues to support energy prices and keeps a war premium embedded in the dollar. Closer to home, Prime Minister Mark Carney indicated yesterday that the provincial bans on US liquor could be resolved quickly if Washington removes tariffs on Canadian steel, aluminum, and autos. That statement followed a threat from US Trade Representative Jamieson Greer to take enforcement action against provinces, including Ontario and Quebec, that imposed the ban. Per RBC, upcoming CUSMA negotiations will be a key focus for markets, with early signs pointing to difficult and volatile talks that should weigh on the Canadian dollar at the margin.

Canadian Data/Outlook:

Canadian retail sales for February rose 0.7% month-over-month against a 0.9% consensus per StatsCan, a modest miss at the headline level but with strong internals. Core sales rose 0.6%, volumes rose 0.3%, and gains were broad with increases in seven of nine subsectors. The March flash estimate points to a further 0.6% gain, though CIBC notes this is almost certainly being lifted by higher gasoline prices rather than discretionary demand. CIBC's take is that Q1 is tracking as the strongest quarter for Canadian retail growth since before the trade tensions dented confidence, but that higher pump prices should now weigh on real spending into Q2. No change to CIBC's forecasts, and the Bank of Canada is comfortably on hold at next Wednesday's decision. CIBC's Central Bank Watch prices a 0% probability of a hike and a 2% probability of a 25 basis point cut at the April 29 meeting. RBC's forecast table holds the overnight rate flat at 2.25% through the fourth quarter of 2026.

Fed Watch:

The Fed has entered its pre-meeting blackout period, so there is no fresh commentary ahead of next Wednesday's decision. Per CIBC's Central Bank Watch, markets price a 0% probability of either a hike or a cut at the April 29 meeting, with an unchanged Fed funds upper bound at 3.75%. Looking further out, CME FedWatch shows roughly a 15% probability of a 25 basis point cut by December 2026 and a 5% probability of a hike, with markets increasingly aligned on a "hold throughout 2026" base case as sustained Hormuz-driven energy price pressure limits the Fed's room to ease. RBC's forecast table projects the Fed funds upper bound flat at 3.75% through the fourth quarter of 2026. The key forward question is whether next Wednesday's FOMC statement acknowledges the inflation risk from elevated oil prices, which would reinforce the no-cut path markets are now pricing.

Technical Picture:

Resistance: 1.3728 (initial, top of RBC's expected 1.3645 to 1.3715 range), 1.3799 (secondary, CIBC's preferred re-entry short zone and RBC's next technical target), 1.3856 (tertiary), 1.3932 (major; has stalled four consecutive rallies since January)
Support: 1.3647 (critical; has held throughout the week after last Friday's hammer reversal pattern, with daily studies approaching oversold levels into the lows), 1.3526 (first downside target on a break, year-to-date low), 1.3482 (subsequent year-to-date low)
Outlook: RBC's one to three month technical target is 1.3750. A daily close below 1.3647 would end the corrective rally that has been in place since late January and open a re-test of the year's lows at 1.3526 and 1.3482. RBC continues to view rallies to 1.3799 and 1.3856 as selling opportunities. With 1.3647 holding for a sixth session and the pair inside the expected band, today's price action is likely to stay compressed into the weekend unless a fresh Hormuz or CUSMA headline breaks the standoff.

Week Ahead:

The calendar pivots next week from this week's geopolitical focus to a global central bank cluster. Back-to-back BoC and Fed decisions on Wednesday headline the week, with both expected to hold and the directional read more likely to come from the statement language and the BoC's neutral rate review than from the decisions themselves. Thursday layers in BoE, ECB, Canadian GDP, and US advance GDP plus core PCE, making it the highest-information day of the month for rates markets.

Other Notes:

• Flash March Canadian retail estimate points to +0.6% m/m, flagged by CIBC as largely a gas-price effect rather than underlying discretionary strength.
• CIBC's strategists remain sellers of USD/CAD rallies but prefer to wait for better levels to re-enter short positions, consistent with RBC's 1.3799 and 1.3856 sell-zone view.
• Front-end rates markets are edging toward a "no Fed cut in 2026" base case as Hormuz-driven energy pressure complicates the disinflation path.