USD/CAD Market Update

Current Level: Low-1.37s (24hr range 1.3702 to 1.3729)

USD/CAD is trading at 1.3721 this morning after opening at 1.3706 and probing as high as 1.3729, with the intraday range a tight 1.3702 to 1.3729. The pair is sitting just inside RBC's 1.3685 to 1.3755 expected daily band and roughly seven pips under the 1.3728 trendline level that the RBC technical desk flags as the key uptrend confirmation. The tape is constructive but contained: in-line US retail sales removed the upside tail, while the Trump-Xi readout removed some of the geopolitical risk premium that had supported USD over the past two weeks.

Market Overview:

Risk appetite is firmer this morning. Per CIBC, equity markets opened at all-time highs as semiconductors continue to lead the broader tape, with the index up roughly 70 percent since the Iran-war lows in March. Global bond yields are slightly lower as the in-line retail sales print failed to push rates higher after two consecutive hot US inflation reports. The US dollar is firmer against most of the G10 basket on residual support from the Tuesday CPI and Wednesday PPI prints, but the move is consolidating rather than extending. Per CIBC, focus is on the Chinese yuan after it hit another year-to-date high against the USD. CAD is range-trading against the dollar with the Trump-Xi Hormuz language and the in-line retail sales together capping further USD upside.

Trump-Xi Summit Delivers Concrete Hormuz Language:

The Beijing summit produced the first substantive constructive headline on the Iran backdrop since the conflict began. Per CNBC and NBC News, Trump and Xi agreed that the Strait of Hormuz must remain open to restore energy flows through the critical waterway, and both countries agreed that Iran cannot have a nuclear weapon. Per Al Jazeera and CNBC, the two sides also reached what was described as overall balanced and positive outcomes on trade at the preparatory South Korea meeting led by Treasury Secretary Bessent and Vice Premier He Lifeng. The strategic framing was for a constructive China-US relationship of strategic stability over the next three years. Taiwan remained the sharpest point: per CIBC and CNBC, Xi warned Trump that mishandling Taiwan could lead to collision or conflict between the superpowers. Per CIBC, the broader market read is cooperative but with little immediate substance, though the explicit Hormuz language is materially more concrete than prior readouts. Per Bloomberg, reports indicate approximately 30 vessels have crossed the Strait of Hormuz in recent hours and Tehran has begun allowing transit for some Chinese ships, the first signs of corridor traffic resuming since the late-February conflict began.

US Retail Sales Print In-Line:

April US headline retail sales rose 0.5 percent month-over-month, matching consensus, and the prior month was revised to 1.6 percent from 1.7 percent per Bloomberg and Census Bureau data. Per RBC, control-group sales, which strip out gasoline, cars, food services, and building materials, slowed to 0.3 percent on the month from 0.7 percent previously. The composition tells the story: the headline lift continues to be carried by gasoline-price pass-through rather than discretionary spending strength, with energy-cost cannibalisation showing up in the slower control-group reading. Per RBC, the print sets up a range-bound session with a slight bias toward further US dollar strength, though the in-line outcome removed the upside tail that a hot print would have delivered. The release was the last major US data catalyst before the May 27 core PCE print, the next inflation pivot.

Canadian Data/Outlook:

The Canadian calendar is essentially empty for the balance of this week. Per CIBC's Central Bank Watch, money markets price a 5 percent probability of a 25 basis point hike at the June 10 Bank of Canada meeting and 0 percent probability of a cut, broadly unchanged from earlier in the week. RBC's published forecast and CIBC's view both hold the BoC overnight rate flat at 2.25 percent through Q4 2026. The next domestic catalyst is the May 23 Canadian CPI release. CAD is currently caught between an energy bid that supports the Loonie on the crosses against a broader USD bid that has driven the headline pair into the top of its multi-week range, with the Trump-Xi Hormuz language now adding a modest constructive overlay if vessel traffic continues to normalise.

Fed Watch:

RBC's rates strategists have made a significant call. Per their updated Federal Reserve view, the team has taken out the Fed rate cuts it was expecting previously and now sees the FOMC on hold throughout 2026 and 2027, with the risk skewed toward higher rates rather than easing. RBC notes there is no longer any debate about whether there will be inflationary pressures, only about how strong they will be, how long they will last, and whether second-round effects are likely to spread through the broader economy. This is the most hawkish bank repricing of the cycle and follows the back-to-back hot US CPI and PPI prints earlier this week. 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 has actually moved the other way today on the in-line retail sales print and the constructive Trump-Xi Hormuz language, with roughly 36 percent probability of one 25 basis point cut by December, 9.5 percent probability of two cuts, and 51 percent pricing rates unchanged through the year-end meeting. The gap between RBC's house view and market pricing is now the widest of the cycle.

Technical Picture:

Resistance: 1.3728 remains the critical level per RBC's technical desk, with the pair currently sitting roughly seven pips below it. A close above 1.3728 opens the door to 1.3799 and 1.3856 as the next upside targets.
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 has tested the 1.3728 area without a clean break, leaving false-break risk in play. Per CIBC's strategists, the desk continues to favour selling USD on rallies with a medium-term target of 1.3500 unchanged. The two-sided framing is straightforward: a clean close above 1.3728 confirms a re-trend toward 1.3799 and a wider 1.35 to 1.39 range that has been in place since the start of 2026, while a failure here sets up a fade back toward 1.3674 as the next support and validates the CIBC sell-rallies thesis.

Week Ahead:

The Trump-Xi summit conclusion tomorrow is the dominant catalyst of the next 24 hours. Any further explicit language on de-escalation in the Strait of Hormuz, or on the timing of resumed vessel traffic, would compress the inflation premium quickly and add to the constructive CAD impulse. Canadian CPI on May 23 is the first domestic catalyst that could shift the Bank of Canada outlook, with hot domestic inflation potentially reinforcing the BoC's hawkish hold. The May 27 core PCE release is the next test of whether the CPI and PPI heat is spilling into the Federal Reserve's preferred measure.

Other Notes:

• UK political pressure continues. Per multiple wire reports, Health Secretary Wes Streeting is reportedly threatening to resign and launch a leadership bid to replace Prime Minister Starmer, with former Deputy Prime Minister Angela Rayner cleared by HMRC and potentially emerging as a more left-leaning contender. Sterling softened slightly across the board in early London trading.
• WTI is trading near US$101 per barrel and Brent near US$105 per barrel, both holding recent ranges. Per CIBC, energy markets are lower on the session as traders await Iran's next move, while equities continue to lead risk-on flows. Per Bloomberg and the IEA, the global oil market is likely to remain heavily undersupplied until October even if the conflict ends next month.