USD/CAD Market Update

Current Level: Low-1.36s (24hr range 1.3578 to 1.3626)

USD/CAD is trading around 1.3623 this morning after probing the 1.3578 area earlier in the session, the lowest print since Friday and right at the floor of RBC's 1.3575 to 1.3645 expected band. The pair has held the low-1.36s for a fourth straight session, but the composition of today's tape is very different from the last three days. Per Axios, the White House and Tehran are closing in on a 14-point, one-page memorandum of understanding that would declare an end to the war, open a 30-day window to negotiate a detailed agreement on the Strait of Hormuz and Iran's nuclear program, and lift US sanctions in exchange for a moratorium on enrichment. US officials expect Iranian responses on key points within 48 hours.

Market Overview:

Risk appetite is broadly firm and the dollar is on the defensive. The DXY is at an eleven-week low, with most of the move powered by JPY strength after another suspected Ministry of Finance intervention drove USD/JPY through 156. Equity futures point to fresh record highs led by semiconductors, and global bond yields are sharply lower as the energy-driven inflation premium unwinds. Per CIBC, the US 30-year is down another 5 basis points after briefly piercing 5.00% on Monday. The combination of lower oil, lower yields, and a softer dollar is the textbook reverse of the war-risk bid that defined the last week, but the move has been contained in USD/CAD because CAD itself is also caught between cheaper oil and broader USD weakness.

US-Iran Memo and the Risk-On Repricing:

The Axios report is the dominant story. Per the Axios account, Trump envoys Steve Witkoff and Jared Kushner have negotiated a one-page MOU directly and through mediators, with provisions including an Iranian moratorium on nuclear enrichment, a US release of frozen Iranian funds and sanctions relief, and a mutual lifting of restrictions on Strait of Hormuz transit. President Trump confirmed overnight that "Project Freedom," the US naval framework for guiding neutral vessels through the strait, has been paused while the agreement is finalized, though the existing US blockade of Iran remains in place. Secretary of State Rubio separately stated that "Operation Epic Fury," the offensive phase of the campaign, is concluded. Per CNBC, oil markets reacted accordingly: WTI is trading near 90 dollars per barrel and Brent near 98 dollars, both down more than 9% on the day and Brent now down more than 13% on the week. Per CIBC, the desk view remains that medium-term USD downside is the right call, but with equities at records and the headline risk now skewed dovish for the dollar, they have less conviction in waiting for a rally to reestablish shorts. A reasonable framing for hedgers: price the MOU as a diplomatic aspiration until both sides sign and shipping volumes recover, but recognise that the USD positioning unwind can run further if the language firms over the next 48 hours.

Friday Jobs Cluster Still the Binary Event:

Friday's coincident release at 5:30 AM Pacific remains the dominant scheduled event. US Non-Farm Payrolls consensus is for a sharp deceleration to 60K from the prior 178K, with the unemployment rate steady at 4.3% and Average Hourly Earnings at 0.3% month-over-month. Canadian Employment is forecast at a 5.1K headline gain against the prior 14.1K, with the unemployment rate steady at 6.7%. Per CIBC, the soft NFP forecast reflects continued weakness in cyclical sectors, and their economists' view is that the Federal Reserve will stay on hold until December. The setup is asymmetric for USD/CAD: a weak US print combined with a Canadian beat could press the pair through 1.3526 quickly, while a US beat could lift the pair back toward the 1.3645 to 1.3669 sellers' zone. The Iran-deal repricing has not displaced this event from the centre of the week's calendar, but it has reduced the bar for the bearish USD/CAD scenario.

Canadian Data/Outlook:

Domestic news flow is light today. Canadian Ivey PMI for April is the only scheduled release, at 7:00 AM Pacific. Per CIBC's Central Bank Watch, money markets price a 3% probability of a 25 basis point hike at the June 10 Bank of Canada meeting and 0% probability of a cut. RBC's central bank forecast holds the BoC overnight rate flat at 2.25% through Q4 2026, mirroring the CIBC trajectory. March merchandise trade data released by Statistics Canada showed a C$1.78 billion surplus, the first surplus since September 2025, driven by a 15.6% jump in energy exports and a 24% surge in metal and mineral exports. Stripping out energy and metals, the export gain was modest, suggesting the headline surplus is more a price shock than a step-change in underlying activity. Friday's employment print is the next BoC-relevant data point.

Fed Watch:

Per CIBC's Central Bank Watch, money markets price a 0% probability of either a hike or a cut at the June 17 FOMC meeting, consistent with a hold consensus. The longer-dated December 17 outlook has firmed dovish on this morning's bond rally and softer dollar tape. CME FedWatch readings have been in a 35 to 45% range over the past week for one cut by December, and we read this morning's repricing as nudging that figure toward the upper end of the range, around 42%. RBC's published forecast continues to hold the Fed Funds upper bound flat at 3.75% through Q4 2026, treating any cut as a tail risk rather than the base case. The Fed's December decision is the next clear catalyst on the FOMC calendar, with last week's hold producing four dissents, the highest count since late 1992.

Technical Picture:

Resistance: 1.3645 first (top of RBC's expected daily range and immediate sellers' zone), 1.3669 next (RBC's former trendline support, now resistance), then 1.3728 above as the deeper post-FOMC inflection.
Support: 1.3526 first (this year's low cluster), then 1.3482 below, with 1.3420 (September 2024 low) the deeper target.
Outlook: Per RBC's technical desk, last Thursday's close below 1.3598 reasserted the bearish trend, and rallies into the 1.3645 to 1.3669 zone should be treated as selling opportunities. CIBC's strategists maintain a similar bias and continue to look for a better entry near 1.3730 to reestablish USD shorts. Today's intraday probe of 1.3578 sets up the 1.3526 year-low cluster as the next downside test, with a clean break opening 1.3482 and 1.3420.

Week Ahead:

Friday's coincident US and Canadian employment release remains the dominant scheduled event. Thursday's UK local elections are a tail risk for sterling and gilts, with the long end of the gilt curve reflecting both political uncertainty and a domestic risk premium ahead of the vote. Today's Ivey PMI is a secondary domestic check on Q2 momentum after the soft flash March GDP print.

Other Notes:

• EUR/USD: EUR/USD is holding the 1.17 handle after closing 1.1707 on May 5, supported by the broad dollar weakness and the rebound off the 200-day moving average near 1.1680. ECB tightening is largely priced, with markets carrying expectations for a June hike and two further 25 basis point moves by year-end. Upside conviction looks fragile at current levels; further EUR/USD repricing is more likely to come from the USD side if the Iran-deal positioning unwind continues.
• JPY: The yen jumped more than 1.9% earlier this morning before giving back some of the move, with USD/JPY trading near 156.30. Per CIBC, this is the fourth Japanese intervention in the last five sessions; the BoJ and MoF are sending a clear message and risk reversals now lean toward further yen appreciation in the near term.
• GBP and gilts: Long-end UK gilt yields are unwinding yesterday's gains as inflation expectations ease, with the 30-year off Tuesday's multi-decade high. Sterling is firmer against the dollar this morning. Thursday's local elections are widely expected to deliver a heavy defeat for Labour, but implied volatility has remained restrained and the market has had time to price in the political risk.
• Canadian housing: Per RBC, Toronto home sales rose 7% month-over-month in April, the first MoM gain since last summer, with the benchmark price holding steady at $929,300 after roughly a year of declines. Year-over-year prices are still down 6.6%.