USD/CAD Market Update

Current Level: Low-1.40s, above 1.4000 (24hr range 1.3990 to 1.4020)

USD/CAD traded in the low-1.40s on Wednesday, near 1.4012, holding above the 1.4000 level after touching 1.4020 overnight. Markets are in a holding pattern ahead of the Federal Reserve decision at 2:00 pm Eastern, the first chaired by Kevin Warsh, with a hold near-certain and attention on the updated projections and the press conference. The Canadian dollar remains the weakest major, pressed by oil sliding toward fresh multi-month lows and a US rate advantage that has stayed north of 130 basis points.

Market Overview:

The US dollar is firmer and Treasury yields are steady to higher as traders position for a hawkish hold. The CME FedWatch tool shows roughly a 97% probability that the Fed leaves its target range unchanged at 3.50% to 3.75% today. Risk appetite is contained, with most major pairs trapped in narrow ranges into the decision. Front-end US yields continue to favor the dollar against its major peers, and implied volatility has stayed low as desks decline to take large directional positions before the statement.

Warsh's First Decision:

Markets widely expect the Federal Reserve to hold its target range at 3.50% to 3.75% when the decision lands at 2:00 pm Eastern, so the focus falls on the updated Summary of Economic Projections and Warsh's first press conference. With recent data showing firm hiring, a stable unemployment rate and inflation still above target, the easing bias in the statement's language around additional adjustments is widely expected to be removed. The March dot plot showed a dozen officials projecting at least one cut this year; consensus now anticipates the median path drifts toward no cuts in 2026, which would matter more than the rate decision itself. Investors will also watch for any signal on the pace of balance-sheet runoff, which could lift term premia and steepen the curve even without a change in the funds rate. The gap between what markets expect and the Fed's last projection is the main risk into the print.

Canadian Data/Outlook:

The Canadian dollar has been the weakest performer in the G10 over the past three months and held that position on Wednesday. Domestic data have actually firmed. Statistics Canada reported manufacturing sales rose 4.2% in April to 77.1 billion dollars, led by a record in petroleum and coal products, while wholesale sales rose 0.6% to 89.3 billion dollars, evidence that activity steadied in the second quarter after back-to-back contractions. Canada's May existing home sales rose 5.5% on the month, the strongest since October 2024, offering tentative signs of housing stabilization, according to RBC. The improvement has not offset the rate differential, which remains north of 130 basis points in the US dollar's favor. The Bank of Canada held its overnight rate at 2.25% on June 10, a fifth consecutive hold, and does not meet again until July 15. Canadian CPI on June 22 is the next domestic catalyst.

Fed Watch:

The CME FedWatch tool shows roughly a 97% probability that the Federal Reserve holds its target range at 3.50% to 3.75% at today's meeting. Markets are pricing essentially no chance of a cut by December, a sharp shift from the easing path priced earlier in the year, as firm hiring and inflation above target have closed the door on near-term easing. The Bank of Japan raised rates 25 basis points on June 16, citing wholesale inflation at 6.3%, fitting a broader pattern of central banks turning more cautious as the energy shock feeds through. RBC's published forecast has the Fed funds upper bound flat at 3.75% through the fourth quarter.

Technical Picture:

Resistance: 1.4051 is the next notable level following the break above congestion at 1.3932 that had capped rallies this year; above that, focus shifts to the November double top near 1.4151, according to RBC.
Support: 1.3932 and 1.3906 mark initial support, with trendline support at 1.3849; a close below that level would end the current uptrend, according to RBC.
Outlook: RBC has shifted from bearish to neutral given recent price action, with 1.3900 as its one-to-three month technical target. Today's expected trading range is 1.3980 to 1.4050.

Week Ahead:

Today's Federal Reserve decision is the dominant catalyst, with the projections and press conference carrying more weight than the rate itself. Canadian CPI on June 22 is the key domestic release ahead of the Bank of Canada's July 15 meeting.

Other Notes:

• Oil extended its slide, with West Texas Intermediate falling toward 75 dollars, its lowest since early March, and Brent below 80 dollars, as markets position for Friday's planned signing of the US-Iran interim agreement in Switzerland that would allow Iranian exports to resume, according to CNBC. Lower crude is a terms-of-trade drag on the Canadian dollar.
• The Bank of England is expected to hold its Bank Rate at 3.75% on Thursday, with the Swiss National Bank also expected to stand pat.
• The Bank of Japan raised its policy rate 25 basis points on June 16, reinforcing a more hawkish global central-bank backdrop.