USD/CAD Market Update

Current Level: Above 1.4000 at fresh 2026 highs (24hr range 1.3932 to 1.4017)

USD/CAD pushed to its highest levels of 2026 on Thursday, trading as high as 1.4017 and holding near 1.4011 in morning dealing, breaking above the 1.4000 level that had marked the ceiling for this year's advance. The move was led by renewed safe-haven demand for the US dollar as the military conflict between the United States and Iran intensified overnight, reinforced by inflation data that has removed any near-term prospect of Federal Reserve rate cuts. The Canadian dollar drew little benefit from higher oil or the Bank of Canada's decision to hold rates a day earlier.

Market Overview:

The US dollar traded near two-month highs, with the broad dollar index hovering around the 100 level, supported by safe-haven flows and elevated US Treasury yields. Risk appetite turned cautious as Middle East tensions escalated and traders weighed the prospect of further military action. Gold and the Swiss franc also attracted defensive flows. Energy-importing currencies, including the euro, pound and yen, came under pressure as fuel costs climbed. Firm front-end US yields continue to favor the dollar against most major peers.

US-Iran Conflict Drives the Dollar's Safe-Haven Bid:

US forces struck Iranian military and air-defence sites overnight, and President Trump warned of heavier strikes and said the United States would move to seize Iran's main oil export terminal at Kharg Island and other energy infrastructure, according to CNBC and the Washington Post. Kharg Island handled close to 90% of Iran's crude shipments before the war. Iran's Revolutionary Guard said it retaliated against US military targets in the Gulf, and Iranian authorities declared the Strait of Hormuz closed. A full halt to Persian Gulf exports would remove close to 20% of global oil supply, which would rank as the largest geopolitical supply disruption on record. The escalation lifted demand for the dollar as a haven. Oil prices swung sharply on each headline, with West Texas Intermediate falling below 90 dollars after the latest strikes were reported complete, then rising about 2.5% to near 92.30 dollars after Iran moved to close the strait, according to CNBC and Reuters. Traders have grown more measured after repeated escalation cycles, which has limited the size of directional moves, though the unresolved supply risk continues to underpin the dollar.

Canadian Data/Outlook:

The Bank of Canada held its policy rate at 2.25% on Wednesday, a fifth consecutive hold, as widely expected. Governor Macklem described a two-sided risk profile, warning that a broadening of inflation pressures from higher energy costs could justify rate increases, while noting that further easing remains possible if the economy weakens under the weight of trade tensions with the United States. Officials said they expect the economy to remain in excess supply and signaled they would look through the first-round effects of higher energy prices, citing limited evidence of broad passthrough into underlying inflation. The net message left the Canadian dollar without a clear domestic catalyst. Higher oil, normally supportive for the currency given Canada's role as an exporter, has been outweighed by broad US dollar strength. Markets price no near-term cut, and the next Bank of Canada decision falls outside the current two-week window.

Fed Watch:

US headline CPI for May, released Wednesday, rose 0.5% on the month and 4.2% from a year earlier, in line with consensus and the fastest annual pace since April 2023, according to the Bureau of Labor Statistics. Energy accounted for more than 60% of the monthly increase, while core CPI was slightly softer than expected at 0.2% on the month and 2.9% annually. The print was high enough to cement the higher-for-longer narrative without altering the immediate rate path. The CME FedWatch tool shows roughly a 96% to 97% probability that the Federal Reserve holds at its June 17 meeting, with the target range at 3.50% to 3.75%. Markets now assign almost no chance of a rate cut this year and have begun to price some probability of a hike, with FedWatch implying meaningful odds of an increase by the autumn. US producer prices for May are due Thursday and will be watched for further evidence of energy passthrough, with consensus near 1.1% on the month for the headline and 0.4% for the core.

Technical Picture:

Resistance: 1.4050 is the first hurdle now that 1.4000 has given way, with 1.4100 the next level beyond.
Support: 1.4000, the psychological level reclaimed on Thursday, now acts as first support, with 1.3932, last week's cap and Thursday's low, below that and 1.3899 beyond.
Outlook: The pair has broken above 1.4000 to fresh 2026 highs, with the safe-haven bid and firm US yields keeping the bias higher. Some bank strategists have continued to hold lower year-end targets near 1.3400, viewing recent levels as an attractive area to sell US dollars, but that case now depends on a de-escalation in the Iran conflict that would unwind the safe-haven premium. Absent that, the path of least resistance points higher, toward 1.4050 and 1.4100.

Week Ahead:

The Federal Reserve decision on June 17 is the clear focal point. A hold is near certain, so the market reaction will hinge on the updated economic projections and Chair Powell's tone, given the recent repricing toward a possible hike. Thursday's European Central Bank decision and US producer prices frame the near term, with a cluster of central bank meetings across Japan, Australia, the United Kingdom and Switzerland filling the calendar through the middle of next week.

Other Notes:

• Oil remains highly volatile and headline-driven, with West Texas Intermediate swinging between roughly 90 and 92 dollars on Thursday as traders weighed competing risks of supply disruption and a negotiated pause. A complete halt to Persian Gulf shipments would represent the largest geopolitical oil supply shock on record.
• The European Central Bank raised its main refinancing rate to 2.40% from 2.15% on Thursday, its first increase in three years. Attention turns to President Lagarde's guidance on whether further tightening follows.
• Trade tensions with the United States remain a background risk for the Canadian dollar, with the Bank of Canada citing tariff uncertainty as a key downside to its growth outlook.