USD/CAD Market Update

Current Level: Low-1.36s (24hr range 1.3583 to 1.3620)

USD/CAD is trading at 1.3611 this morning, up roughly 23 pips from Friday's 1.3588 close and back above the 1.3598 trendline that defined Friday's directional break. The intraday range has been a tight 1.3583 to 1.3620, well inside RBC's 1.3575 to 1.3645 expected band. The catalyst is fresh Iran escalation: Tehran has asserted control of the Strait of Hormuz with a new "control zone" requiring vessels to coordinate with Iranian forces, and Iran claims to have struck two US Navy ships with missiles, a claim the US has denied. The escalation comes alongside President Trump's "Project Freedom" announcement to guide neutral shipping through the strait without putting surface combatants at direct risk.

Market Overview:

Risk appetite is fragile to start the week. Equity markets opened mixed as traders weigh the renewed Middle East risk premium ahead of a heavy data week. The dollar is firmer against the G10 basket, though moves have been muted by the UK bank holiday. Global bond yields are higher, with the US 30-year back above the 5.00% handle. WTI is trading near $102 per barrel and Brent has rallied above $110, both up roughly 2% as traders remain unconvinced that the escort framework can quickly normalize tanker flows. The combination of firmer USD, higher yields, and a renewed energy bid has produced a tactical USD bid that has partially unwound Friday's break lower.

Iran Escalation Reasserts War-Risk Bid:

President Trump's "Project Freedom" announcement aims to guide, but not escort, neutral shipping through the Strait of Hormuz, with US Central Command committing 15,000 service members, more than 100 aircraft, warships, and unmanned platforms to the operation. The framework stops short of offering convoy protection through the narrow waterway, which limits its near-term operational impact. Tehran responded by declaring a new control zone in the strait requiring vessels to coordinate movements with Iranian forces, and reported that approximately 2,000 vessels carrying 20,000 maritime workers have been stranded in the strait since hostilities began in February. A tanker off Fujairah reported being struck by unknown projectiles shortly after the US announcement. Per CIBC, the desk view is that the USD can bounce in the short run on war risk, with global energy stockpiles approaching their lowest levels in a decade and shortages potentially intensifying within weeks as peak driving season starts. Their longer-term USD bias remains bearish, and they would use any rally as an opportunity to reestablish USD shorts.

Canadian Data/Outlook:

Friday's Canadian Employment report at 5:30 AM Pacific is the domestic event of the week. Consensus looks for a headline gain of 5.1K against the prior 14.1K, with the unemployment rate steady at 6.7%. Per CIBC's economists, temporary hiring may boost employment for a couple of months before reverting to weakness during the summer as young people find it difficult to secure part-time work. Their base case is that Friday's print will not alter the Bank of Canada's trajectory, which is expected to remain on hold through 2026 following the April 29 hawkish hold at 2.25%. Money-market pricing aligns with this view, with roughly an 18% probability of a 25 basis point hike at the June 10 meeting and 0% probability of a cut. There is a notable divergence in commentary, however: some external research desks have begun flagging the possibility of consecutive BoC rate increases if oil-driven inflation persists, citing Macklem's explicit warning to that effect. CIBC and RBC both continue to forecast the overnight rate flat at 2.25% through Q4 2026, treating the hike risk as a tail rather than a base case. Governor Macklem's remarks today following last week's monetary policy decision will be watched for any incremental signal.

Fed Watch:

Friday's US Non-Farm Payrolls release at 5:30 AM Pacific is the headline data point. Consensus is for a sharp deceleration to 60K from the prior 178K, with Average Hourly Earnings at 0.3% month-over-month and the unemployment rate steady at 4.3%. Per CIBC's economists, the soft NFP forecast reflects continued weakness in cyclical sectors. With unemployment expected to remain at the historically low 4.3% level, their view is that the Federal Reserve will stay on hold until December, focused on keeping inflation expectations anchored. Market positioning has firmed modestly over the weekend on the broader USD bid: prediction markets and the CME FedWatch tool are now pricing roughly a 46% probability of one 25 basis point cut by the December 17 meeting, up from approximately 36% on Friday. The shift is largely a function of weekend headline risk rather than any Fed-specific signal. Last week's FOMC outcome remains the dominant Fed input, with four dissents recorded, three against the inclusion of an easing bias and one in favour of a cut, the highest dissent count since late 1992.

Technical Picture:

Resistance: 1.3645 first (top of RBC's expected daily range and immediate sellers' zone), 1.3661 next (RBC's secondary resistance, where rallies are described as selling opportunities), then 1.3700 above as Wednesday's post-FOMC inflection.
Support: 1.3575 first (bottom of RBC's expected daily range), then 1.3526, 1.3482, and 1.3420 (the September 2024 low and RBC's longer-term technical target).
Outlook: RBC has lowered its 1 to 3 month technical target to 1.3500, aligning with CIBC's standing Q2 target. Friday's close below 1.3598 reasserted the downtrend after Monday's false break at 1.3650, and rallies into the 1.3645 to 1.3661 zone are described by RBC as selling opportunities. Today's bounce is consistent with a retest of broken-trendline-as-resistance rather than a directional shift, and the 1.3500 to 1.3670 fair-value range identified by CIBC strategists remains in force.

Week Ahead:

Friday's joint North American employment release at 5:30 AM Pacific is the binary event of the week for USD/CAD. A US NFP print materially below the 60K forecast would extend the dovish Fed repricing already underway and pressure the pair lower toward the 1.3526 support zone. A firmer-than-expected reading combined with a soft Canadian print would lift USD/CAD into the 1.3661 to 1.3700 sellers' zone where CIBC strategists have indicated they would re-establish shorts.

Other Notes:

• Energy: WTI is trading near $102 per barrel and Brent near $110 per barrel, both up roughly 2% on the Iran escalation. Per CIBC's energy team, oil inventories will be strained by June, which should rebuild the war risk premium and support the USD in the near term.
• USD/JPY: The yen is firmer again as markets watch for follow-through on the Bank of Japan's April 30 intervention, which sent USD/JPY down roughly 3% from above 160. There has been no official confirmation of further intervention so far today, with the magnitude of the move suggesting it may have been a rate check rather than a fresh round of yen purchases.
• UK local elections: Thursday's vote is being framed as a referendum on Prime Minister Keir Starmer's Labour government, with Labour defending more than 2,500 seats across 136 English local authorities. Heavy losses are expected and could prompt a leadership challenge. Implied volatility on the pound remains low into the event.
• Canadian mortgage stress: Per RBC, Brampton recorded a 0.6% delinquency rate on mortgages overdue 90 days or more in Q4 2025, more than double the 0.26% national average. Equifax has identified Brampton, Toronto, Markham, Oshawa, and Vancouver as the principal contributors to Canada's rising delinquency trend.