USD/CAD Market Update

Current Level: Upper-1.37s (24hr range 1.3746 to 1.3797)

USD/CAD is trading at 1.3797 this morning after opening at 1.3748 and printing the session high at 1.3797, with the intraday range 1.3746 to 1.3797. The pair has now closed the gap to CIBC's near-term 1.3813 target on the morning's Khamenei headline, with the move pushing the pair into 13 of the last 15 up-sessions and sitting at the top of RBC's 1.3745 to 1.3815 expected daily band. The 1.3799 resistance level flagged by the RBC technical desk all week is now in play on a real test rather than the consolidation pattern of the prior three sessions.

Market Overview:

Risk appetite has soured this morning. Per CIBC, equity markets are drifting lower as investors grow impatient with the lack of real progress on Iran, with the morning's hard-line directive on uranium retention reversing the bid that supported risk through Wednesday's tape. Per CNBC, US crude is up roughly 4 percent to 101.96 per barrel and Brent is up roughly 3 percent to 108.34 on the Khamenei headline. Global bond yields are higher across the curve as the lack of an Iran deal continues to weigh on fixed income. The US dollar is firmer against the G10 basket, supported by the combined hawkish Fed minutes from yesterday and the renewed geopolitical risk premium. CAD is tracking the wider G10 weakness against the dollar despite the firmer oil tape, with the macro divergence story holding the pair on the front foot.

Khamenei Reverses Iran Optimism:

The morning's pivotal headline came from Reuters reporting that Iran's Supreme Leader Khamenei has issued a directive that near-weapons-grade enriched uranium must stay inside Iran. This directly contradicts the central US demand at the negotiating table, which has been for limits on enrichment and uranium control. Per CIBC, the broader read is that the same "progress" headlines continue to land with no actual resolution, and fatigue is starting to show up in price action as traders wonder when an actual deal materialises. Per CNBC, the directive complicates the peace track that the White House said yesterday was in the "final stages," with Trump warning that strikes could resume within days if talks fail. The Strait of Hormuz remains largely closed to international shipping, with only coordinated tanker transits permitted by Iranian authorities. The reload of the geopolitical risk premium is the channel through which the Iran story is flowing back into the bond and FX tape, with the oil bid reinforcing the inflation pulse that has been the driver of long-end yields all month.

Fed Minutes Aftermath: Cuts Priced Out, Hikes In Play:

Yesterday's April FOMC minutes were the most hawkish read of the cycle. Per CIBC and the FOMC record, "many" participants would have preferred removing the easing-bias language from the post-meeting statement, while the majority noted that inflation would take longer to return to the 2 percent target than previously expected and a meaningful camp pointed to the possibility that additional policy firming could become appropriate if inflation stays persistently high. Per RBC, the hurdle for the next cut has moved higher and the timeline has drifted out, with the hawkish minutes interacting with the oil-driven inflation pulse to keep "higher for longer" intact. Per CME FedWatch, money markets now price approximately 35.7 percent probability of one 25 basis point cut by the December FOMC meeting, 9.5 percent probability of two cuts, and 51.3 percent probability the Fed holds at the current range through year-end. Per RBC, the strategists' published Fed funds forecast holds rates flat at 3.75 percent upper bound through every quarter of 2026, with the risk skewed toward a hike rather than easing.

Canadian Data/Outlook:

The Canadian calendar is empty today, with the next domestic catalyst the May 29 GDP release. Per CIBC's Central Bank Watch, money markets price a 2 percent probability of a 25 basis point hike at the June 10 Bank of Canada meeting and 0 percent probability of a cut. Per RBC, the published forecast holds the BoC overnight rate flat at 2.25 percent through every quarter of 2026. The May Canadian Federation of Independent Business sentiment data released this week showed the 12-month forward-looking Business Barometer Index falling 12 points to 46.3, with the sub-50 reading flagging more SMEs expecting weaker performance than growth. Per Reuters, 53 percent of business owners cited insufficient customer demand as a primary barrier and small business staffing intentions have flipped to net-negative for the first time this year. The cooler domestic backdrop, combined with Tuesday's soft core CPI prints, reinforces the macro divergence with the US that continues to pressure CAD on the cross.

Fed Watch:

Per CME FedWatch, the probability of one 25 basis point cut by the December FOMC meeting sits at 35.7 percent, with 51.3 percent probability of a hold through year-end and 9.5 percent probability of two cuts. The June 17 meeting is the next FOMC decision and the first under newly confirmed Chair Kevin Warsh with a live policy outcome. Per CIBC's Central Bank Watch, money markets price 2 percent probability of a 25 basis point hike at the June 17 meeting and 0 percent probability of a cut at that decision. Per RBC, the published forecast removed all 2026 and 2027 cuts last week and now flags the risk as skewed toward a hike, the most hawkish bank repricing of the cycle. The next inflation pivot is the May 28 US Core PCE release.

Technical Picture:

Resistance: 1.3799 is the live test on today's high at 1.3797, with CIBC's near-term target at 1.3813 the next level out and 1.3869 the level beyond.
Support: 1.3728 trendline confirmation, then 1.3643 secondary support, and 1.3560 the broader trendline below.
Outlook: Per CIBC's strategists, the desk continues to favour the 1.3813 near-term target and would use that level as an opportunity to enter fresh USD short positions on the view that the long-term call remains for a move back toward 1.3500. Per RBC, daily closes above 1.3728 confirmed the bullish reversal last week and the 1.3799 to 1.3869 zone is the next correction target, with a daily close above 1.3932 the level that nullifies the broader bearish view. The short-term setup favours the buyers until a daily close back below 1.3728, while the medium-term sell-rallies thesis remains intact above.

Week Ahead:

The US Core PCE print on May 28 is the next major US inflation pivot and the read-through from April's hot CPI and PPI to the Fed's preferred measure. The Canada March GDP release on May 29 is the only domestic data point before the June 10 BoC decision. Headline risk on Iran remains the dominant near-term driver and can shift the FX tape at any point through the next two weeks.

Other Notes:

• Walmart reported Q1 FY27 revenue of 177.8 billion this morning, beating consensus, but Q2 EPS guidance of 0.72 to 0.74 missed the 0.75 Street estimate and full-year guidance of 2.75 to 2.85 fell short of 2.92 consensus. Per Reuters, the company flagged a roughly 250 basis point hit to operating income from higher fuel-driven delivery and fulfillment costs, the corporate-margin proof point that the energy pulse is now squeezing earnings even at the most-scaled retailer.
• Per AAA, the US national average gasoline price reached 4.555 per gallon as of May 20, up roughly 44 percent year-over-year and the channel through which the oil pulse continues to feed into household budgets and the inflation expectations the Fed is now tracking.
• Nvidia delivered a clean Q1 beat after yesterday's close with revenue of 81.6 billion and Q2 guidance of 91 billion. The stock reaction has been muted as data centre concentration at 92 percent of revenue and the priced-for-perfection setup left no room for upside surprise.