USD/CAD Market Update

Current Level: Low-1.37s (24hr range 1.3680 to 1.3725)

USD/CAD is trading at 1.3720 this morning after opening at 1.3680 and running on a clean bullish reaction to the hot US CPI print, with the pair tagging an intraday high of 1.3725 just three pips below RBC's 1.3728 resistance trendline. The intraday range is a tight 1.3680 to 1.3725, with the pair extending 41 points off the open and now sitting at the top of RBC's expected 1.3670 to 1.3740 daily band. Per CIBC, the move is exactly what their strategists called for, and they note that current levels are where they would be comfortable establishing fresh USD short positions.

Market Overview:

Risk appetite is fragile this morning. Per CIBC, equity markets opened lower as the hot CPI print and lack of progress on Iran weigh on sentiment, with tech taking a breather after a roughly 30% rally in the S&P 500 over the past six weeks. Per CIBC, this strengthens the case that the recent move was a late-cycle melt-up. Global bond yields are higher in synchronised fashion as investors price a prolonged disruption in global energy supplies and a rebuilding inflation premium. The US dollar is firmer against the G10 basket, catching a bid on the fragile risk tone, with most majors down roughly a third of a percent against the greenback from yesterday's close. Oil's renewed bid is normally CAD-supportive on the crosses, but today the hot CPI print and the broader risk-off pulse have dominated, leaving the Loonie to track the wider G10 weakness.

US CPI Prints Hot, Oil-to-Core Spillover Confirmed:

April US headline CPI rose 0.6% month-over-month, pushing the year-over-year rate to 3.8% from 3.3% prior, ahead of the 3.7% consensus per CIBC and RBC. Core inflation surprised to the upside at 0.4% month-over-month, lifting the annualised pace of core CPI to 2.8% versus 2.7% expected. Per CIBC, that is the highest core inflation reading since last September. The headline lift was driven by another sharp move in gasoline prices, with airfares and tariff-exposed apparel adding to the upside surprise. Per CIBC, this is the first clear spillover from the oil price shock into core inflation, and their economists note today's data points to an even hotter May CPI print. The trading implication is straightforward: the Federal Reserve has effectively no room to ease until energy prices move sustainably lower, and the higher-for-longer USD bid that has supported the pair since the Iran conflict began now has fresh data backing.

Iran Proposal Rejected, Hormuz Standoff Hardens:

Per CNBC and CIBC, President Trump dismissed Iran's response to the US 14-point proposal as "totally unacceptable" and described the early-April ceasefire as on "massive life support," raising the risk that military operations resume within days. Per Bloomberg and Saudi Aramco, traffic through the Strait of Hormuz remains at an effective standstill and global oil supplies are declining by roughly 100 million barrels per week. WTI is trading at 101.87 per barrel and Brent at 104.97 per barrel, with WTI up roughly 3.9% on the session per Trading Economics and CNBC. Iran is reportedly positioning small submarines in the strait to reinforce its control over the corridor per RBC, while prediction markets place only one-in-three odds on a full reopening by the end of June. The cross-asset response has been textbook: higher oil, a rebuilding inflation premium, and a firm USD bid against most of the G10 basket.

Canadian Data/Outlook:

The Canadian calendar is essentially empty. Per CIBC's Central Bank Watch, money markets price a 4% probability of a 25 basis point hike at the June 10 Bank of Canada meeting and 0% probability of a cut, up marginally from 3% on Monday. RBC's published forecast holds the BoC overnight rate flat at 2.25% through Q4 2026 across all four quarters, with CIBC holding the same view. The BoC Market Participants Survey released yesterday is the most recent domestic catalyst and did not shift consensus terminal-rate expectations. CAD is caught in the usual two-sided tension this week: an energy bid that supports the Loonie on the crosses against a broader USD bid driven by hot US data, with the net effect leaving USD/CAD at the top of its range.

Fed Watch:

The hot CPI print has materially repriced the Fed path. CME FedWatch now shows roughly 15% probability of a single 25 basis point cut by the December FOMC meeting, down from 33% on Friday and 36% on Thursday, with 78% pricing rates unchanged through year-end. Notably, a small but non-trivial 5% probability of a 25 basis point hike has reappeared, the first time hike-pricing has shown up materially in this cycle. Per CIBC's Central Bank Watch, money markets price 0% probability of either a hike or a cut at the June 17 FOMC meeting. Per CIBC, today's data should keep the Federal Reserve on the sidelines until energy prices move sustainably lower, with no change to their forecast of one FOMC cut in December. RBC's published Fed Funds upper-bound forecast remains flat at 3.75% through Q4 2026.

Technical Picture:

Resistance: 1.3728 is the immediate ceiling per RBC's technical desk, currently being tested with today's 1.3725 intraday high. Per RBC, a close above 1.3728 opens the door to 1.3799 and 1.3856 as the next upside targets.
Support: 1.3672 is the nearest support, the old trendline flipped after Friday's break. 1.3526 is the deeper test below, marking the 2026 low cluster.
Outlook: Per RBC, USDCAD is so far shrugging off the upside surprise in inflation as the market searches for a new catalyst, with the pair edging modestly higher on dollar strength and the 1.3728 trendline the next confirmation level for the uptrend. Per CIBC's strategists, current levels are the zone where they would be comfortable re-establishing USD short positions. The technical setup is consistent with that two-sided framing: a clean close above 1.3728 invites a run toward 1.3799, while a failure to break would set up a fade back toward 1.3672 as the next support.

Week Ahead:

Wednesday's PPI is the next concentrated US-data risk after today's CPI, with a hot print likely to extend the higher-for-longer Fed narrative and the USD bid. The Trump-Xi summit is the wildcard: a constructive readout that includes any de-escalation signal on Iran or Hormuz could compress the inflation premium quickly, while a confrontational outcome would extend the risk-off tape. Retail Sales on Thursday rounds out the US data block. The next Bank of Canada decision is June 10 and the next FOMC is June 17, both outside this report's horizon.

Other Notes:

• UK gilt stress: Per CIBC and Bloomberg, the UK 30-year gilt yield hit 5.8% this morning, the highest level since 1998, as more than 80 Labour MPs called on Prime Minister Keir Starmer to step down following the local-election losses. Markets are pricing fiscal-discipline risk under a potentially more left-leaning successor. Sterling is under selling pressure on the cross. Watch for spillover into G10 risk sentiment if the political situation escalates further.
• Equity-market positioning: Per CIBC, the roughly 30% S&P 500 rally over the past six weeks sits deep in the extreme right tail of historical outcomes, with semiconductors leading. Moves of this magnitude have historically only occurred during last-cycle melt-ups or aggressive policy-driven responses, neither of which describes the current backdrop.