USD/CAD Market Update

Current Level: High-1.36s (24hr range 1.3684 to 1.3712)

USD/CAD is trading at 1.3708 this morning after opening near 1.3699 and pushing as high as 1.3712, with the intraday range a tight 1.3684 to 1.3712. The pair is sitting just below RBC's 1.3725 expected daily band ceiling and roughly 17 pips under the 1.3728 trendline level that the RBC technical desk has flagged as the key uptrend confirmation. Per RBC, the dollar is trading near the top of this week's range, with commodity currencies including CAD outperforming on the firm energy bid, but the broader USD strength following today's PPI release is keeping the headline pair pinned.

Market Overview:

Risk appetite is fragile this morning. Per CIBC, equity markets opened mixed as traders focus on the hot PPI report ahead of tonight's Trump-Xi meeting, with the US 30-year Treasury yield holding above 5.00% for a second day. Global bond yields are higher in synchronised fashion as the inflation premium continues to rebuild. The US dollar is firmer against the G10 basket following the PPI release per CIBC, though commodity currencies including NOK, AUD, and CAD are outperforming on the firm energy tape per RBC. Oil's renewed bid is normally CAD-supportive on the crosses, but today the hot producer data and the broader USD strength have dominated, leaving the Loonie to track the wider G10 in a tight range against the dollar.

US PPI Confirms Oil-to-Producer Pipeline:

April US headline PPI rose 1.4% month-over-month and 6.0% year-over-year per CIBC and Bloomberg, the strongest annual pace since 2022 and well ahead of the 4.8% consensus. Per RBC, core PPI accelerated 1.0% month-over-month versus 0.4% expected, lifting the annual core pace to a matching 6.0%. The composition is the uncomfortable part. Energy contributed roughly one quarter of the monthly gain per RBC, but the bulk came from trade services, which jumped 2.7% month-over-month, the largest single-month gap since 2009, and from transportation and warehousing, which jumped a record 5.0% on the month. Per RBC, the trade-services surge indicates companies currently have strong pricing power to pass higher input costs through to buyers, which raises the risk that the supply-side inflation pulse persists in core PCE later this month. Per CIBC, the print sets a very high bar for rate cuts and, if anything, strengthens the case for higher-for-longer policy. Several PPI buckets feed directly into the Fed's preferred core PCE measure, so the read-across to the May 30 PCE release is the next inflation pivot.

Trump-Xi Meeting and Iran Backdrop:

President Trump's first trip to China of his second term begins tonight at 7:15pm Pacific, with a meeting scheduled with President Xi Jinping. Per CIBC, the delegation is unusually heavyweight, including Elon Musk, Jensen Huang, Tim Cook, and Larry Fink, with tariffs and trade the core agenda items and Iran and Taiwan also on the table. This is the first US presidential visit to China since 2017. Most desks expect the meeting to produce headline-friendly commitments on agricultural, energy, and aerospace purchases rather than a fundamental shift in the trade balance, with the fragile tariff ceasefire likely held in place. The Iran backdrop remains hot. Per NBC News and multiple wire reports, the Trump administration is weighing a rebrand of the Iran campaign as "Operation Sledgehammer" should the early-April ceasefire collapse, which would reset the 60-day War Powers clock for congressional authorisation. Per RBC, Iran is positioning small submarines in the Strait of Hormuz to reinforce control of the corridor, while Saudi Aramco reports global oil supplies declining by roughly 100 million barrels per week. WTI is trading near US$102 per barrel and Brent near US$107 per barrel, both holding yesterday's gains.

Canadian Data/Outlook:

The Bank of Canada publishes the Summary of Deliberations from the April 29 meeting today, and External Deputy Governor Alexopoulos speaks on AI adoption, productivity, and economic potential in Canada at 11:20am Pacific. Per RBC, the April meeting carried a hawkish tilt, with Governing Council looking through the war's immediate impact on inflation but explicitly committed to not letting higher energy prices become persistent inflation. Per the Bank of Canada April statement, the policy rate was held at 2.25%, with the Canadian economy expected to grow at a moderate pace as it adjusts to US tariffs. Per CIBC's Central Bank Watch, money markets price a 4% probability of a 25 basis point hike at the June 10 meeting and 0% probability of a cut, unchanged from earlier in the week. RBC's and CIBC's published forecasts hold the BoC overnight rate flat at 2.25% through Q4 2026. CAD remains caught between an energy bid that supports the Loonie on the crosses and a broader USD bid driven by hot US inflation data.

Fed Watch:

The hot PPI print has barely moved Fed pricing because the market already repriced sharply on yesterday's CPI. Per CME FedWatch, money markets now price 78.2% probability that the federal funds target range stays at 3.50% to 3.75% through the December 16 FOMC meeting, with 15.4% probability of a single 25 basis point cut and 5.4% probability of a 25 basis point hike. Per CIBC's Central Bank Watch, money markets price 0% probability of either a hike or a cut at the June 17 FOMC meeting. The Senate confirmed Kevin Warsh as a Federal Reserve governor by a 51 to 45 vote earlier this week, with the separate confirmation vote as Chair expected imminently and his first full meeting in charge set for June 16 to 17. RBC's published forecast holds the Fed Funds upper bound flat at 3.75% through Q4 2026.

Technical Picture:

Resistance: 1.3725 caps the week's expected range per RBC, with 1.3728 the key trendline level that must close above to confirm uptrend continuation. Above there, RBC's upside targets sit at 1.3799 and 1.3856.
Support: 1.3674 is the prior trendline test level. Below there, RBC flags limited support until 1.3526 and then 1.3482 if bearish momentum resumes.
Outlook: Per RBC, the pair closed slightly above the 1.3674 dashed trendline last Friday but has failed to sustain momentum above current levels, leaving a false-break risk in play. A clean close above 1.3728 opens the door to further gains, while a failure here risks a reversion back toward the 1.3650 area.

Week Ahead:

Tomorrow's US Retail Sales is the next major data catalyst. A firm print would reinforce the higher-for-longer Fed narrative and likely test resistance at 1.3725 and 1.3728. A miss would give CAD bulls room to challenge support at 1.3674. UK GDP late tonight is a secondary catalyst for GBP cross flow but unlikely to drive USD/CAD directly.

Other Notes:

• UK political uncertainty intensified Tuesday, with four ministers including Home Office minister Jess Phillips resigning and more than 80 Labour MPs publicly calling for Prime Minister Starmer to step aside. Per multiple wire reports, Health Secretary Wes Streeting is preparing to resign and is viewed as a leading contender in any leadership contest. The 30-year gilt yield rose as much as 14 basis points to 5.81%, the highest since 1998. GBP/USD is drifting back toward 1.35.
• The International Energy Agency this morning forecast a 1.78 million barrels per day global oil deficit for 2026, a reversal from the surplus projected just months ago, with the second-quarter shortfall alone expected to reach 6 million barrels per day.