USD/CAD Market Update

Current Level: Low-1.38s (24hr range 1.3777-1.3821)

USD/CAD extended its month-long grind higher, closing above 1.3800 for the first time in 2026 and breaking the 1.3799 resistance level that has capped the pair since mid-May. Soft underlying Canadian consumption data, a persistent oil risk premium tied to US-Iran tensions, and reinforced "higher for longer" Fed messaging combined to push the pair to fresh highs.

Market Overview:

Risk appetite is positive heading into the long weekend, with US equity futures pointing to an eighth consecutive weekly gain for the S&P 500, the longest weekly winning streak since 2023. The rally remains narrow and tech-led, but solid earnings and continued artificial intelligence capex enthusiasm have outweighed concerns about elevated energy prices and softening global growth. The US dollar is mixed against the G10, with CAD underperforming following mixed domestic data.

CAD Breaks Lower as Resistance Gives Way:

USD/CAD took out the 1.3799 ceiling that has held since the mid-May range began, with the intraday high at 1.3821. RBC frames this as a test of initial resistance, with a clean close above 1.3799 opening the door to 1.3869 and then 1.3932, the latter representing a significant congestion zone that has repeatedly capped upside earlier this year. Both CIBC and RBC maintain a constructive medium-term CAD view, with RBC's 1-3 month technical target at 1.3500 absent a definitive break of 1.3932, and CIBC explicitly recommending using rallies as opportunities to re-enter USD short positions. Geopolitical risk and weak domestic data are doing the work near term, but the desk consensus is that this leg higher is a tactical move rather than a structural shift.

Canadian Data/Outlook:

Canadian retail sales for March printed +0.9% headline vs. +0.6% expected, but the beat is doing more flattering than describing. Ex-autos and gasoline, sales fell 0.1%, and total volumes were down 0.7%, pointing to a meaningful loss of momentum in real consumer spending to close Q1. Early April tracking suggests a 0.6% rebound, again likely flattered by higher pump prices. CIBC reiterated its call for the Bank of Canada to remain on hold through 2026, and current pricing for the June 10 BoC meeting reflects effectively zero probability of a cut. The next domestic catalyst is Canadian GDP m/m on May 29, with the prior reading at +0.2%.

Fed Watch:

The April 28-29 FOMC minutes, released earlier this week, reinforced a hawkish hold. According to CNBC's coverage, a majority of participants pointed to the possibility that additional policy firming could become appropriate if inflation stays persistently elevated, and FXStreet noted that "many" participants would have preferred removing the easing-bias language from the statement. CME FedWatch currently prices roughly a 36% probability of any rate cut by the December 17 meeting, with markets leaning toward a prolonged hold at the current 3.50-3.75% range. RBC's own forecast has the Fed Funds upper bound at 3.75% through Q4 2026. The next FOMC meeting is June 17.

Technical Picture:

Resistance: 1.3869 (next RBC technical level), 1.3932 (significant 2026 congestion zone, multiple prior rejections)
Support: 1.3799 (former resistance, now first line of defense), 1.3728 (prior range low)
Outlook: With 1.3799 broken on a closing basis, the immediate path is higher toward 1.3869. A clean break above 1.3932 would invalidate the medium-term USD-lower thesis held by both CIBC and RBC. Until then, treat strength above 1.3850 as a level to consider for tactical USD selling, consistent with the bank desks' framing.

Week Ahead:

The standout for USD/CAD is the Thursday US Core PCE print, which the Fed treats as its preferred inflation gauge. A hot read would reinforce the hawkish-minutes narrative and add pressure to the pair. Friday's Canadian GDP follows, with anything weaker than the prior +0.2% likely to extend CAD softness into next week.

Other Notes:

• S&P 500 is on track for its longest weekly winning streak since 2023, with eight consecutive weekly gains. Breadth remains narrow and tech-skewed, a watchpoint for whether the rally can sustain into June.
• US-Iran negotiations continue to dominate the energy risk premium. According to CIBC, lingering geopolitical risk has been a primary driver pushing USD/CAD higher almost every session this month; any concrete progress toward de-escalation would likely cap further upside.