USD/CAD Market Update

Current Level: Mid-1.37s (24hr range 1.3737 to 1.3774)

USD/CAD is trading at 1.3769 this morning after opening at 1.3739 and printing as high as 1.3774, with the intraday range 1.3737 to 1.3774. The pair is sitting near the top of RBC's 1.3720 to 1.3790 expected daily band, having now spent six consecutive sessions above the 1.3728 trendline level that the RBC technical desk flagged last week as the key uptrend confirmation. The morning's soft Canadian CPI print, combined with fragile risk sentiment from continued long-end yield pressure, has pushed the pair to fresh weekly highs.

Market Overview:

Risk appetite is negative this morning. Per CIBC, equities opened lower as elevated bond yields continue to provide a sober wake-up call to the market bulls, with the US 30-year Treasury yield reaching its highest level since 2007. Global bond yields are higher across the curve in synchronised fashion, extending the long-end repricing that drove last week's tape. The US dollar is firmer against the G10 basket, with fragile sentiment keeping the greenback supported. Precious metals remain under pressure, with gold down roughly 2 percent and silver down 5 percent for another session. CAD is tracking the wider G10 weakness against the dollar despite the firmer oil tape, with the soft domestic CPI print removing any remaining domestic support.

Canadian Inflation Surprises to the Downside:

April Canadian headline CPI rose 2.8 percent year-over-year per CIBC and Bloomberg, missing the 3.1 percent consensus, with gasoline doing most of the heavy lifting on the headline. The core measures preferred by the Bank of Canada, CPI-Trim and CPI-Median, both printed below expectations and near the BoC's 2.0 percent target. Per RBC, CPI ex-food and energy collapsed to 1.5 percent year-over-year from 1.9 percent, the lowest reading since 2020. The trim and median averaged just 0.16 percent month-over-month, continuing a trend of soft monthly prints in five of the past six months. Per CIBC, today's report was much better than feared and supports the call for the BoC to remain on the sidelines throughout this year before starting to hike in 2027. Per RBC, the base case probability assessments remain: 50 percent probability the BoC stays on hold through 2026 with 100 basis points of hikes in 2027, 40 percent probability hikes begin in H2 2026, and 10 percent probability the Bank cuts this year. Money markets price a 2 percent probability of a 25 basis point hike at the June 10 meeting and 0 percent probability of a cut per CIBC's Central Bank Watch.

Iran Premium Reloaded:

The Strait of Hormuz reopening narrative that briefly supported risk sentiment last week has reversed sharply. President Trump publicly stated overnight that he had suspended a planned bombardment of Iran, while also instructing the US military to be "prepared to go forward with a full, large scale assault of Iran, on a moment's notice in the event that an acceptable Deal is not reached." The combination of suspended action plus credible escalation threat has reloaded the geopolitical risk premium that briefly faded after last week's Trump-Xi Hormuz commitments. Brent crude is trading near 111 per barrel, with WTI at 108, up roughly 20 percent in the last month. The renewed Middle East uncertainty continues to feed the inflation pulse the long end of the bond market is now pricing, particularly in rate-sensitive economies including Canada that rely on imported energy through global supply chains.

Fed Watch:

Tomorrow's FOMC meeting minutes are the key US catalyst this week. Per CIBC's Central Bank Watch, money markets price a 4 percent probability of a 25 basis point hike at the June 17 Fed meeting and 0 percent probability of a cut. Per CME FedWatch, the probability of a single 25 basis point cut by the December meeting is 15.4 percent, with a 5.4 percent probability of a hike and a 78.2 percent probability the Fed holds at the current 3.50 to 3.75 percent range through year-end. Per RBC's strategists, the base case has now removed all Fed cuts from 2026 and 2027, with the risk flagged as skewed toward a hike, the most hawkish bank repricing of the cycle. At the April meeting three officials dissented in favour of changing the official statement to reflect a more neutral stance, and tomorrow's minutes could show others leaning in the same direction. Any sign hawks are gaining the upper hand could push Treasury yields higher and propel the dollar.

Technical Picture:

Resistance: 1.3799 first test, with 1.3869 the next level out and 1.3932 the potential quadruple top per RBC's technical desk.
Support: 1.3728 trendline confirmation, then 1.3643, and importantly 1.3560 trendline.
Outlook: Per RBC, a daily close above 1.3728 has confirmed bullish momentum and last week's trend reversal above 1.3626, with the 1.3720 to 1.3790 expected daily band the active range. Per CIBC, a retest of the 1.3790 to 1.3800 area would be used as an opportunity to enter new USD short positions. A daily close above 1.3932 would nullify the bearish 1 to 3 month technical target at 1.3500.

Week Ahead:

Tomorrow's FOMC minutes are the immediate catalyst given the April dissents and the prospect of a hawkish lean from other voters. The May 28 US core PCE is the next inflation pivot following the past two weeks of hot CPI and PPI prints. Friday's Canadian GDP closes the week.

Other Notes:

• UK March labour data showed wage growth slowing, unemployment rising, and vacancies falling, with private sector pay growth printing 3.0 percent versus 3.1 percent expected per RBC, easing pressure on the Bank of England to tighten further.
• Japanese GDP surprised to the upside at 2.1 percent year-over-year per RBC.
• Alberta will submit a proposal for a one-million-barrel pipeline by July 1 as part of a broader agreement with Ottawa, contingent on the Pathways carbon capture and storage project, per RBC. Alberta's deadline to raise its industrial carbon price to 130 per tonne has been extended by 10 years to 2040.