USD/CAD Market Update

Current Level: Mid-1.37s (24hr range 1.3724 to 1.3767)

USD/CAD is trading at 1.3757 this morning after opening at 1.3725 and printing as high as 1.3767, with the intraday range 1.3724 to 1.3767. The pair is sitting inside the 1.3715 to 1.3785 expected daily band but is now decisively above the 1.3728 trendline level that has been flagged all week as the key uptrend confirmation. This is the seventh consecutive up session, with the pair extending roughly 220 pips off the 1.3540 area where the bounce began, and the move has shifted from a positioning unwind to a clean repricing of the cross-asset complex.

Market Overview:

Risk appetite is negative this morning. Equities opened sharply lower as the global bond selloff sends shockwaves through risk markets, with the Nasdaq leading the decline as the historic tech rally gets a reality check. Global bond yields are materially higher in synchronised fashion, with the move concentrated at the long end of every major curve. The US dollar is firmer against the G10 basket, catching a fresh bid as fragile risk sentiment pushes the index to multi-week highs. Gold is down over 2 percent on the session as the once-safe-haven asset continues to trade like a risk-on security, removing the usual hedge that would have cushioned the bond move. CAD is tracking the wider G10 weakness against the dollar with no domestic data on the calendar to push back against the broad USD bid.

Bond Vigilantes Send Yields to Decade Highs:

The top story this morning is the global long-end selloff. Per CNBC, the US 30-year Treasury yield jumped more than 10 basis points to 5.117 percent, the highest since May 2025 and a level only seen twice this decade, in October 2023 when then-Chair Powell pivoted and in June 2025 when President Trump announced the 90-day tariff pause. The 10-year benchmark surged more than 11 basis points to 4.573 percent. The move is global, not just a US story. The 30-year Japanese Government Bond yield is now trading above the 30-year Canadian equivalent for the first time ever, with the JGB 30-year breaking the 4.00 percent handle. Per CIBC, what makes this move different is that the far end of the rates curve is no longer pricing central bank cuts at all. Traders are now pricing at least one Fed hike by March 2027 and one Bank of Canada hike by September 2026 on the OIS curve, the most hawkish read of the cycle. The cumulative tape this week, hot April CPI on Tuesday, hot PPI on Wednesday, in-line retail sales on Thursday, and the first full trading week under newly confirmed Fed Chair Kevin Warsh, has compounded into a clean trend reversal at the long end.

Hormuz Reopening Stalls:

The Strait of Hormuz reopening narrative that drove yesterday's Trump-Xi headlines has reversed. Open transits through the corridor have fallen back to near zero per day since May 6, leaving overall traffic over the last two months running at roughly 5 percent of the pre-war average. The Islamic Revolutionary Guard Corps Navy has redefined the strait as a vast operational area extending from the Iranian port city of Jask to Siri Island, a substantially wider zone than the narrow corridor that markets had been watching for reopening. Per the IEA, the cumulative supply loss since the conflict began in late February is approximately 12.8 million barrels per day, which the agency has flagged as the largest oil supply disruption in the history of the global market. WTI is trading above 102 per barrel and is on track for a weekly gain of more than 7 percent, while Brent is holding above 107. The IEA also cautioned that global supply could remain constrained through October even if the conflict is resolved next month. The reversal in the Hormuz tape is what is reinforcing the inflation pulse the bond market is now pricing.

Canadian Data/Outlook:

The Canadian calendar is empty for the balance of today, with markets closed Monday for Victoria Day. Money markets price approximately a 1 percent probability of a 25 basis point cut at the June 10 Bank of Canada meeting and no rate change otherwise expected at the rate-decision date, leaving the overnight rate at 2.25 percent. A separate read of the OIS curve flags a small 5 percent probability of a 25 basis point hike at that same meeting, the highest BoC hike pricing of the cycle, which captures the same far-curve repricing that is visible in the long-bond move. Published bank forecasts hold the BoC overnight rate flat at 2.25 percent through every quarter of 2026, unchanged this week. Next Tuesday's April Canadian CPI release at 5:30am Pacific is the next domestic catalyst and the only release before the June 10 decision that can meaningfully shift BoC pricing.

Fed Watch:

Per CME FedWatch, money markets price approximately 70 percent probability of no change at the June 17 FOMC meeting, 28 percent probability of a 25 basis point cut, and a 2 percent residual probability of a hike. The cut-by-December path has tightened on the cumulative inflation tape, with the implied probability of at least one cut by year-end at approximately 28 percent. The split between the front and the back of the curve is the story today. The fed funds futures path still leaves room for a single cut by year-end, while the long-end of the bond curve has fully repriced to a hike-skewed distribution into 2027. Traders are also pricing the policy reaction function under newly confirmed Fed Chair Kevin Warsh, who was confirmed by the Senate on Tuesday in a 54-45 vote, the closest Fed chair confirmation in the modern era. Warsh's first FOMC meeting is the June 16-17 decision. He has argued there is room to lower rates but has also committed to using his own judgment rather than taking direction from the White House, which has left the market relatively uncommitted on his near-term reaction function. The next inflation pivot is the May 27 core PCE release.

Technical Picture:

Resistance: 1.3799 is the next upside test, flagged as the first significant correction target above 1.3728. Above that, 1.3869 and 1.3932 are the next two extension levels, with 1.3932 also marking the potential quadruple-top that, if cleared on a daily close, would nullify the broader bearish view.
Support: 1.3728 has flipped from resistance to support on today's break and is the first level to watch on any pullback. Below 1.3728, 1.3643 is the next floor, and the broader trendline support sits at 1.3560.
Outlook: The seven-session run has produced a clean break of the 1.3728 trendline level, with the 50 and 100-day moving averages converging in that 1.3720 to 1.3730 zone and now sitting below spot. Bank strategists continue to hold a medium-term USD/CAD target of 1.3500 and favour selling USD on rallies, but on the short term the technical setup has shifted in favour of the buyers until 1.3728 is reclaimed from above. The 1-3 month technical target also remains 1.3500, contingent on a daily close back below 1.3728.

Week Ahead:

Tuesday's Canada CPI is the most important domestic release of the next two weeks and the only release that can meaningfully shift the BoC June 10 decision pricing. The headline is forecast to soften to 0.8 percent month-over-month from 0.9 percent prior, but any upside surprise would compound the global inflation pulse already visible in the US CPI and PPI prints from earlier this week. The FOMC minutes on Wednesday will be read for the dissent pattern at the late April meeting, which was the last meeting before Warsh's confirmation.

Other Notes:

• Long weekend ahead. Canadian markets are closed Monday, May 18 for Victoria Day. Expect thin liquidity through the New York afternoon today and a quieter than usual Monday session driven almost entirely by US flows.
• The 50 and 100-day moving averages have converged at 1.3720 to 1.3730 and now sit just below spot, a level cluster that will act as the first technical floor on any near-term retracement.
• WTI is up more than 7 percent on the week with crude trading above 102 per barrel, and Brent above 107, the firm energy bid that has supported the inflation pulse all week and remains the channel by which the Hormuz reversal is feeding back into the bond move.