USD/CAD Market Update

Current Level: High-1.41s (24hr range 1.4095-1.4134)

USD/CAD has pushed to a new 2026 high, trading in the low 1.41s after the Federal Reserve delivered a hawkish hold under new chair Kevin Warsh. The US dollar is near a one-year high as markets reprice the Fed's path from cuts to hikes, and every major currency is weaker against the greenback. Falling oil prices and a widening rate gap are compounding the pressure on the Canadian dollar.

Market Overview:

Rate differentials, not geopolitics, are driving currency markets again. The dollar posted its largest one-day gain of the year on a trade-weighted basis after the Fed decision, and front-end Treasury yields jumped, with the two-year yield near a 16-month high. Risk sentiment was mixed. Equities found some support as oil retreated on progress toward a ceasefire with Iran, while the rates repricing kept the dollar firmly bid across the board.

Fed Reprices the Dollar Higher:

The Federal Reserve held the federal funds rate at 3.50% to 3.75% for a fourth consecutive meeting, a unanimous decision that was widely expected. The surprise was in the projections. The updated dot plot lifted the median year-end rate to 3.8% from 3.4% in March, with nine of the committee's officials now expecting at least one hike before December, a sharp reversal from the prior forecast for a cut. The committee also raised its 2026 PCE inflation forecast to 3.6% from 2.7%, citing energy and inflation pressures. Chair Warsh broke with convention by declining to submit his own rate projection, and used the press conference to announce a shorter post-meeting statement and a step back from explicit forward guidance.

Oil Retreats as Hormuz Reopens:

Crude prices have fallen back toward pre-conflict levels, with Brent near 78 dollars a barrel and West Texas Intermediate near 75 dollars, after the United States and Iran signed a memorandum to end hostilities and reopen the Strait of Hormuz. The framework calls for an immediate cessation of hostilities and a 60-day window to negotiate a permanent agreement, and initial shipping flows through the strait have resumed. Lower oil is a headwind for the Canadian dollar given Canada's position as a net crude exporter.

Canadian Data/Outlook:

The Canadian dollar is trading at its weakest level since November, weighed down by the broad US dollar move, softer oil and a widening rate differential. The gap between US and Canadian two-year yields has widened to roughly 136 basis points in the dollar's favor, the widest in over a year, as US front-end yields climb while the Bank of Canada is expected to hold a softer stance. Speculative positioning is heavily short the Canadian dollar, near the most bearish levels on record, which leaves the currency exposed but also vulnerable to sharp short-covering on any reversal. The July 1 CUSMA trade review adds another layer of uncertainty. Canadian CPI on June 22 is the next domestic catalyst.

Fed Watch:

Fed funds futures have swung decisively toward tightening. Markets now price the next move as a hike rather than a cut, with a September increase seen as more likely than not, a dramatic shift from the roughly one-in-three odds priced ahead of the decision. The Federal Reserve's own projections point to a year-end rate near 3.8%, and the 2026 inflation forecast was revised up to 3.6%. With forward guidance scaled back, markets will lean more heavily on incoming data, putting added weight on next week's US Core PCE release.

Technical Picture:

Resistance: 1.4151, the next upside reference after the break to new 2026 highs, then the round 1.4200 level.
Support: 1.4051, the prior resistance that now acts as support, then the psychological 1.4000 mark.
Outlook: The break above the 1.40 handle keeps the near-term bias higher while the rate and oil backdrop holds. A close back below 1.4051 would suggest the post-Fed move is consolidating rather than extending.

Week Ahead:

Canadian CPI on June 22 will shape Bank of Canada expectations, while the US Core PCE print on June 25 is the most important read on the inflation pressures the Fed flagged. The July 1 CUSMA review is a known risk event for the Canadian dollar.

Other Notes:

• US markets are closed Friday, June 19 for the Juneteenth holiday, which will thin liquidity heading into the weekend.
• The euro fell to around 1.15 against the dollar, its weakest since late March, on the same rate repricing.
• The Bank of England held its policy rate at 3.75% this morning; sterling has been among the weaker major currencies over the past two sessions.