USD/CAD Market Update

Current Level: Mid-1.36s (24hr range 1.3658 to 1.3695)

USD/CAD is trading around 1.3659 this morning after opening near 1.3684 and probing as low as 1.3658, with the Loonie outperforming the dollar on the crosses as crude prices firm on the latest Iran reversal. Friday's session closed at 1.3676 after the NFP beat carried the pair into the low-1.37s, and this morning's tape has unwound roughly two-thirds of that move on the energy bid. The intraday range is 1.3658 to 1.3695.

Market Overview:

Risk appetite is mixed to start the week. Per CIBC, equity markets opened little changed as traders weigh geopolitical updates against corporate earnings, with semiconductors still leading the broader tape after a multi-week parabolic move. Global bond yields are inching higher as the inflation premium rebuilds with crude. The dollar is firmer against most of the G10 basket on the latest Iran setback, but CAD is the clear exception, outperforming on the back of higher energy prices. Per CIBC, the US dollar is mixed against the G10 with the Loonie leading on the crosses. The combination of stronger oil, firmer Treasury yields, and a partial unwind of last week's USD weakness is reasserting the war-risk regime that defined late March and April.

US-Iran Negotiations Collapse Again, Oil Shock Reasserts:

The negotiation track flipped over the weekend. Tehran's response to the one-page memo, transmitted on Sunday, demanded an end to the US naval blockade, full sanctions relief, a cessation of US military operations, and formal Iranian control over traffic through the Strait of Hormuz, while deferring the nuclear question entirely. Per CNBC, President Trump dismissed the terms on Truth Social as "totally unacceptable," and per CIBC, the US has firmly rejected the proposals. The market response has been textbook: oil prices reversed, with WTI trading up to roughly US$97 to US$100 per barrel and Brent above US$103 per barrel per CIBC and CNBC, both up more than 2% on the session. Per CIBC's commodities desk, the quick-deal narrative is dead for now, Hormuz remains largely blocked, and even an eventual reopening will leave a damaged trust premium in the curve. The trading consequence for USD/CAD is two-sided: the higher-oil leg is CAD-supportive on the crosses, but the broader risk-off pulse and rebuilding USD risk premia caps how far CAD can run.

Warsh Confirmation Vote Today:

The Senate is scheduled to hold the floor vote on Kevin Warsh's confirmation as Federal Reserve Chair today, with Powell's term expiring on May 15. Per CNBC and CBS News, the Senate Banking Committee advanced the nomination 13 to 11 along party lines on April 29, marking the first fully partisan committee vote on a Fed chair nominee. With a 53-seat Republican majority and at least one Democrat (Senator Fetterman) signalling support, confirmation is the base case. For USD, the more interesting question is what Warsh signals at his first appearance: he is widely viewed as hawkish relative to Powell, and any opening message that prioritises inflation over labour-market slack could reinforce the higher-for-longer Fed pricing that has supported USD over the past two weeks.

Canadian Data/Outlook:

The Canadian calendar is essentially empty this week. Per CIBC, no major Canadian economic events are scheduled, leaving CAD to take its cues from the broader macro tape, Iran-driven oil prices, and risk-on/off dynamics. Friday's employment release covered the domestic data set for the moment: a 17.7K job loss in April and unemployment climbing to 6.9 percent, the worst start to a year since the pandemic. Per CIBC's Central Bank Watch, money markets price a 3 percent probability of a 25 basis point hike at the June 10 Bank of Canada meeting and 0 percent probability of a cut, unchanged from before the weekend. RBC's published forecast and CIBC's view both hold the BoC overnight rate flat at 2.25 percent through Q4 2026. The trade-off for CAD this week is straightforward: an energy bid that supports the Loonie on the crosses against a broader USD bid that caps how far the headline pair can fall.

Fed Watch:

Per CIBC's Central Bank Watch, money markets price 0 percent probability of either a hike or a cut at the June 17 FOMC meeting. CME FedWatch readings have edged back up to roughly 36 percent for a single 25 basis point cut by December, with around 51 percent pricing rates unchanged through the year-end meeting. The slight bounce from Friday's 33 percent reading reflects the market putting some cut probability back on the curve as the Iran reversal raises the spectre of a renewed oil-driven stagflation pulse. Per CIBC, US economists continue to look for a December cut on the view that the gasoline-driven headline lift will fade in the summer months and allow the Federal Reserve to look through the one-time impulse. Goldman Sachs has now pushed its first-cut call to December 2026 with the next move not expected until March 2027. RBC's published Fed Funds upper-bound forecast remains flat at 3.75 percent through Q4 2026.

Technical Picture:

Resistance: 1.3720 is the key level flagged by CIBC's strategists as the area where they will look to re-enter USD short positions. 1.3800 is the next level out and aligns with the 200-day moving average zone.
Support: 1.3600 is the immediate floor for today's tape, with 1.3526 the deeper test marking the 2026 low cluster.
Outlook: Per CIBC's strategists, the desk continues to look for further upside in USD/CAD into a hot US CPI print and a subsequent rebuild in USD risk premia, favouring a move toward the 1.3720 resistance area as the level to re-establish USD short positions. The tape today is consistent with that framing: a clean break below 1.3658 would put 1.3600 in play and challenge the constructive USD setup, while a hot CPI print on Tuesday should take the pair back into the 1.37 handle.

Week Ahead:

Tuesday's CPI is the dominant scheduled catalyst of the week. Per CIBC, the headline number is expected to print hot on the continued surge in gasoline prices, while the core measure is expected to come in close to consensus. A hot core would extend the USD bid and tee up the 1.3720 sell-zone that CIBC has flagged; an in-line or soft core would relieve some of the inflation pressure and allow CAD to extend the Hormuz-driven outperformance toward the 1.3600 support area. PPI on Wednesday and Retail Sales on Thursday are the secondary US data catalysts, with both feeding into the same higher-for-longer Fed narrative if firm.

Other Notes:

• UK politics: Prime Minister Keir Starmer delivered what was billed as a career-defining speech this morning, acknowledging the local-election losses and signalling a new direction built on tighter links with the European Union. The absence of an immediate leadership challenge has allowed sterling and gilts to stabilise, though prediction markets continue to assign a meaningful chance that Starmer is forced out before year-end.
• BoC Market Participants Survey: The Bank of Canada releases its quarterly Market Participants Survey at 7:30 AM Pacific. Watch for any drift in the consensus terminal-rate view ahead of the June 10 meeting.