USD/CAD Market Update

Current Level: High-1.39s, just below 1.4000 (24hr range 1.3950 to 1.3993)

USD/CAD traded in the high-1.39s on Monday, near 1.3988, after dipping to 1.3950 early and recovering into the close. A weekend agreement between Washington and Tehran to halt hostilities and reopen the Strait of Hormuz triggered a broad risk-on move, sending crude oil sharply lower and weakening the US dollar against its major peers. The Canadian dollar drew little benefit, as falling oil prices offset the improvement in risk appetite and the wide gap between Federal Reserve and Bank of Canada policy continues to anchor the pair near its 2026 highs.

Market Overview:

Markets opened the week in a clear risk-on posture. Equities advanced globally, government bond yields eased, and the US dollar weakened broadly against its G10 counterparts as the war-related risk premium unwound. Energy-importing currencies led the gains, with the euro, pound, yen and Swiss franc all firmer as hedging demand faded. The decline in oil eased the near-term inflation impulse, and front-end yields slipped as traders pared a small part of the tightening they had priced. Even so, the move looks contained. Implied volatility stayed low, and the US dollar remains supported by a still-wide rate advantage and persistent US inflation.

US-Iran Deal Reopens Hormuz, Oil Slides:

The United States and Iran announced an interim agreement over the weekend to pause the conflict and reopen the Strait of Hormuz, with a formal memorandum of understanding expected to be signed in Switzerland on Friday. Reports indicate the United States would ease sanctions on Iranian oil, both sides would lift their shipping blockades, and negotiations over Iran's nuclear program would continue for a further 60 days, according to RBC and the Pakistani officials who mediated the talks. Crude fell roughly 5% to three-month lows near 80 dollars on the prospect of resuming shipments through the strait, which carries close to a fifth of global oil supply. Markets are treating the framework with caution. It is a narrow 60-day bridge rather than a comprehensive settlement, the formal signing is not due until Friday, and a normalization of crude flows would take time even if the deal holds. RBC notes that any deterioration in the talks could sharply reverse the risk-on move and return a bid to the US dollar.

Canadian Data/Outlook:

The Canadian dollar remains caught between competing forces. Lower oil prices weigh on a major Canadian export and on the country's terms of trade, while the easing of the global inflation shock is modestly supportive of broader risk sentiment. On balance the terms-of-trade drag kept the currency a laggard within the risk-on move, leaving USD/CAD near its highest levels of the year. The policy backdrop is unchanged. The Bank of Canada held its overnight rate at 2.25% on June 10, a fifth consecutive hold, and Governor Macklem described two-sided risks, with scope to raise rates if higher energy costs broaden into persistent inflation or to ease if US trade measures weigh on growth. With the Federal Reserve holding at a materially higher level, the front-end rate differential continues to favour the US dollar. There is no major domestic data in the next two weeks, so the Canadian dollar will trade off the Fed decision and the path of oil.

Fed Watch:

Wednesday's Federal Reserve decision is the week's marquee event for USD/CAD, and it carries added weight as the first meeting chaired by Kevin Warsh, with the rate decision itself widely expected to be a hold. Markets continue to price the policy rate staying in the 3.50% to 3.75% range, with the CME FedWatch tool implying roughly a 97% probability of no change and little to no prospect of a cut this year. With the rate outcome close to settled, attention turns to the updated Summary of Economic Projections and the tone of the new chair's first press conference. The lower path for oil eases some of the near-term inflation pressure that had been building, which could give the committee room to frame policy as neutral rather than leaning toward further tightening. Markets will read the projections, and the dot plot in particular, for any sign of internal disagreement and for whether officials still see the next move as more likely a hike than a cut. A new chair conducting his first meeting adds a layer of communication risk, since investors have less of a track record to anchor expectations.

Technical Picture:

Resistance: 1.4000 is the immediate psychological hurdle, with the 1.4024 June 11 high marking the 2026 peak and 1.4051 the next level cited by RBC; a sustained break would open the November double top near 1.4151.
Support: 1.3950 held as Monday's low and first support, with 1.3923 below it and 1.3894 beyond; a close under the 1.3839 trendline would be needed to end the current uptrend.
Outlook: The pair has eased back from last week's marginal break above 1.4000 but continues to hold the high-1.39s, with the wide rate differential underpinning the topside bias. RBC has shifted its technical stance from bearish to neutral and flags scope for a pullback toward 1.3923 and 1.3894 in the coming weeks, with a 1 to 3 month target near 1.3900. A durable de-escalation that keeps oil lower is the main risk to the topside, while any breakdown in the Iran framework would likely return a safe-haven bid to the US dollar.

Week Ahead:

The Federal Reserve on Wednesday dominates the week for USD/CAD, with the rate decision near certain and the focus on the projections and the new chair's first press conference. The Bank of Japan and Reserve Bank of Australia decide in the Asian session, UK inflation lands Tuesday, and the Bank of England and Swiss National Bank follow Thursday. With the Bank of Canada having held last week and no domestic data due, the Canadian dollar will take its lead from the Fed and the path of oil.

Other Notes:

• Crude oil fell roughly 5% to three-month lows near 80 dollars as the war-related risk premium unwound, a move that would ease the energy-driven inflation impulse across the major economies if it holds (RBC).
• Energy-importing currencies led the dollar's decline, with the euro, pound, yen and Swiss franc all firmer as lower oil and improved risk sentiment supported them.
• Canadian household net worth rose 1.3% to 18.6 trillion dollars in the first quarter, led by gains in residential real estate and financial assets, a sign of domestic resilience (RBC, Statistics Canada).
• The Bank of England is expected to hold at 3.75% on Thursday, with Tuesday's UK inflation print watched for whether the tone shifts after the European Central Bank's recent move higher.