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Canadian Dollar: Rebalancing offers near-term relief – BNY

Geoff Yu at BNY highlights that Canadian Dollar (CAD) dynamics differ from the U.S., with equity-based rebalancing pointing toward CAD support as growth and allocation trends move opposite to the US Dollar. Fixed income steepening and poor CAD performance are seen amplifying CAD buying signals, suggesting some relief for the Canadian Dollar into month-end.

Canadian Dollar supported by flows

“Mathematically, our figures suggest that the unwinding of USD/CAD hedges – the discontinuation of forward USD selling against CAD on U.S. positions – played a big role in the dollar’s performance and some reversion is needed.”

“The only other equity-based rebalancing signal is in the CAD, where growth and asset allocation trends are pointing in the opposite direction.”

“In contrast, CAD buying is being amplified by similar steepening in bond markets on top of poor currency performance.”

“USD and CAD have again generated the same net selling and buying signals, though the dollar’s signal is far weaker, as poor bond performance offset dollar purchases. In contrast, CAD buying is being amplified by similar steepening in bond markets on top of poor currency performance.”

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Canadian Dollar gains ground amid hopes of a deal to reopen the ​Strait of Hormuz

  • USD/CAD weakens to near 1.3805 in Monday’s early European session. 
  • The US Secretary of State said, “Either reach a good deal with Iran or handle it differently.” 
  • Cooling domestic inflation and economic weakness in Canada might cap the Canadian Dollar’s upside.  

The USD/CAD pair edges lower to around 1.3805 during the early European session on Monday. The US Dollar (USD) softens against the Canadian Dollar (CAD) after US officials signal progress on a peace deal with Iran. Trading volumes are expected to be light due to a market closure for Memorial Day in the US. 

Reuters reported on Monday that US Secretary of State Marco Rubio said that the US will give diplomacy every chance on Iran but will pursue other means if a good deal cannot be reached while describing the current framework as solid. Rubio stated that a deal to end the war with Iran is still possible on Monday. 

On Sunday, US President Donald Trump said that Washington and Iran had “largely negotiated” a memorandum of understanding on a peace deal that would reopen the Strait of ‌Hormuz. 

Although global oil prices remain elevated, the commodity-linked Loonie failed to capitalize. Concerns over underlying domestic economic growth could offset typical commodity-driven tailwinds.

Traders brace for the US Personal Consumption Expenditures (PCE) Price Index report on Thursday for fresh impetus. In case of hotter-than-projected outcomes, this could underpin the Greenback against the CAD in the near term. 

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Currency Talk – EUR/USD, USD/CHF, USD/CAD

Key takeaways

  • What is the technical outlook for EURUSD, USDCHF and USDCAD?

EURUSD EURUSD prices have recently broken below the 1:1 uptrend, whose lower boundary was at 1.1650. According to the Overbalance methodology, this paves the way for the downtrend to extend, potentially as far as the low at 1.1420. Conversely, for a return to an uptrend, the price would first need to move back above the 1.1650 level, and ideally also break through the 1.1720 level, where the upper limit of the local 1:1 downtrend pattern is located.

EURUSD – H4 chart. Source: xStation USDCHF The USDCHF remains in a long-term downtrend. The price rebounded from a key resistance level at the end of March, leading to a decline of nearly 300 pips. Currently, attention should be paid to a local descending geometric pattern, for which resistance is at the 0.7914 level. Should this level be breached, the price could continue to rise towards the next resistance level at 0.8035. Only a sustained break above this higher level would suggest a shift in the balance of power on the chart. For the time being, however, the base case scenario remains a downtrend.

USDCHF – H4 chart. Source: xStation USDCAD The USDCAD pair shifted sentiment at the start of May, and since then we have seen a local uptrend, supported by a green 1:1 bullish pattern. Should a correction occur, the key support level remains at 1.3723. A break below this level could open the way for a decline towards 1.3630, where the polarity of the previously negated bearish pattern, marked in red, is located.

USDCAD – H4 timeframe. Source: xStation

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CAD hangs near one-month low vs bullish USD; rising Oil prices limit losses

  • USD/CAD stands firm near one-month top amid sustained USD buying interest.
  • Fed rate hike bets and geopolitical tensions benefit the USD’s safe-haven status.
  • Rising Oil prices underpin the Loonie and cap any further upside for spot prices.

The USD/CAD pair trades with a positive bias above mid-1.3700s during the Asian session on Monday, though it remains below a one-month top touched last Friday. A sustained US Dollar (USD) buying interest acts as a tailwind for spot prices while rising Crude Oil prices underpin the commodity-linked Loonie and cap further gains.

In a post on Truth Social, US President Donald Trump warned Iran on Sunday that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.” Adding to this, the Times of Israel reported that Israel and the US are actively advancing military preparations to potentially resume coordinated attacks against Iran. This raises the risk of a further escalation of tensions in the Middle East, which, along with the effective closure of the Strait of Hormuz, lifts Crude Oil prices to a two-week high.

Meanwhile, elevated energy prices continue to fuel inflationary concerns and bolster market expectations for a more hawkish US Federal Reserve (Fed). In fact, the CME Group’s FedWatch Tool indicates that traders are currently pricing in over a 50% chance of a Fed rate hike by the end of this year. Apart from this, persistent geopolitical uncertainties lift the safe-haven USD to its highest level since April 7, offsetting the negative factors and supporting the USD/CAD pair. This, in turn, favors bulls and backs the case for further appreciation.

Moving ahead, there isn’t any relevant market-moving economic data due for release on Monday, either from the US or Canada. That said, fresh developments surrounding the Middle East crisis might continue to infuse volatility in the financial markets and drive Crude Oil prices. Furthermore, the USD price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for spot prices remains to the upside.

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Canadian Dollar moves little as traders adopt caution ahead of US-China summit

  • USD/CAD remains steady as traders await the high-stakes Trump-Xi summit.
  • Trump and Xi may lower tariffs on $30 billion of non-sensitive goods, excluding items vital to national security.
  • The commodity-linked CAD may weaken as falling oil prices reduce demand for Canada’s primary export.

USD/CAD remains calm after six days of gains, trading around 1.3700 during the Asian hours on Thursday. The pair stays silent as the US Dollar (USD) moves little as market caution prevails ahead of a pivotal summit in Beijing between US President Donald Trump and Chinese President Xi Jinping. Traders will also shift their focus to the US Retail Sales report for April due later in the day.

As the world’s two largest economies attempt to stabilize their relationship, they are reportedly considering a framework to reduce tariffs on roughly $30 billion worth of goods, excluding those tied to national security. However, geopolitical tensions remain a major factor. The summit is taking place against the backdrop of the war in Iran. Washington has recently increased pressure on Tehran by imposing new sanctions on entities involved in selling Iranian oil to China and threatening banks that facilitate those transactions.

On Wednesday, the US Bureau of Labor Statistics (BLS) reported that wholesale inflation hit its highest level since late 2022. The Producer Price Index (PPI) surged to 6.0% year-over-year (YoY) in April, up from 4.3% in March and well above the 4.9% expected by the market. On a monthly basis, PPI rose 1.4%, doubling the previous month’s 0.7% and far exceeding the anticipated 0.5% increase.

The USD/CAD pair may regain its ground as the commodity-linked Canadian Dollar (CAD) may lose ground amid lower oil prices, given Canada’s status as the largest crude exporter to the United States (US).

However, Oil supply concerns also loom over the market as the US Energy Information Administration (EIA) stated that crude and fuel flows through the Strait of Hormuz dropped by nearly 6 million barrels per day in the first quarter following the outbreak of the Middle East conflict in late February.

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Currency Talk – USDCAD, AUDUSD, EURNZD

Key takeaways

  • What is the technical outlook for USDCAD, AUDUSD and EURNZD?

This analysis from the Overbalance series aims to identify three financial instruments, analysed primarily on the daily/four-hour (D1/H4) timeframe. The analysis utilises only the Overbalance methodology, which helps to identify points where a trend may continue or where a reversal may occur. Today’s analysis covers three instruments, assessed solely in terms of 1:1 correction structures. USDCAD USDCAD prices remained in a downtrend throughout April, but in recent days the 1:1 downtrend pattern has been negated at the 1.3630 level, which, according to the Overbalance methodology, may signal a significant upward correction or even a trend reversal. Currently, the key support level remains at 1.3655, where the lower boundary of the local 1:1 pattern is located. As long as the price remains above this level, the bullish scenario remains in place. Conversely, a return below 1.3630, i.e. below the polarity of the previously negated pattern, could once again open the way for further declines.

USDCAD – H4 timeframe. Source: xStation AUDUSD The AUDUSD exchange rate has been on an upward trend since the beginning of April. The key support level for the exchange rate is currently 0.7170. According to the Overbalance methodology, as long as the price remains above this level, the upward trend remains in place.

AUDUSD – H4 chart. Source: xStation EURNZD Since 7 April, the EURNZD has been trading in a downtrend. Should the upward correction extend, the key resistance level remains at 1.9872. As long as the price stays below this level, the bearish scenario remains in place. Conversely, for a return to the uptrend to be considered, the price would need to rise above the 1.9969 level, where the polarity of the previously negated 1:1 upward geometry is located.

EURNZD – H4 timeframe. Source: xStation

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CAD remains depressed vs firmer USD; rising Oil prices limit further losses

  • USD/CAD trades with positive bias for the fourth straight day amid a broadly firmer USD.
  • Iran tensions and hawkish Fed expectations turn out to be key factors supporting the USD.
  • Rising Crude Oil prices could underpin the Loonie and cap further upside for spot prices.

The USD/CAD pair attracts some dip-buying following Friday’s late pullback from the vicinity of the 100-day Simple Moving Average (SMA) and climbs back closer to the 1.3700 during the Asian session on Monday. This marks the fourth straight day of a positive move – also the sixth in the previous seven – and is sponsored by a modest US Dollar (USD) strength.

The recent optimism over a potential US-Iran peace deal and the de-escalation of conflict faded rather quickly in the wake of renewed hostilities in the Strait of Hormuz. Adding to this, US President Donald Trump and Iran both rejected each other’s peace proposals for ending the war and the gradual reopening of the Strait of Hormuz amid major disagreements over Iran’s nuclear program. This keeps geopolitical risks in play and benefits the safe-haven USD, offering some support to the USD/CAD pair.

Meanwhile, persistent geopolitical uncertainties trigger a fresh leg up in Crude Oil prices, reviving inflationary fears. Adding to this, the upbeat US Nonfarm Payrolls (NFP) report, released on Friday, fuelled expectations for a more hawkish US Federal Reserve (Fed) and turned out to be another factor underpinning the Greenback. The Canadian Dollar (CAD), on the other hand, is weighed down by the disappointing monthly employment details, which showed that the Unemployment Rate rose to 6.9% in April.

That said, rising Crude Oil prices might hold back traders from placing aggressive bearish bets around the commodity-linked Loonie and cap any further upside for the USD/CAD pair. Even from a technical perspective, Friday’s failure ahead of the 100-day SMA makes it prudent to wait for a sustained strength above the said barrier before positioning for any further gains. In the absence of any relevant market-moving economic data, spot prices remain at the mercy of USD/Oil price dynamics.

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Trade of The Day – USD/CAD

Facts:

  • The pair is testing the +1 standard deviation line of the anchored VWAP, calculated from 2 January 2025
  • Canada is one of the world’s leading oil exporters

Recommendation:

  • Long position on USDCAD at market price
  • SL: 1.35575
  • Target Price: 1.38880

Opinion:

The USD/CAD pair is currently trading around 1.3647, within a support zone defined by key volume patterns from the volume profile built since the start of 2025. Both the Stop Loss (1.35575) and Take Profit (1.38880) levels have been set in relation to the largest volume clusters visible on the profile – zones of historically high market activity which act as strong technical barriers. The price is approaching the lower boundary of a multi-month consolidation phase, and the 1.3620–1.3660 zone has repeatedly acted as a support level triggering upward movements, which confirms the validity of opening a technical long position.

The key fundamental argument is the CAD’s dependence on oil prices – Canada is one of the leading exporters of crude oil, and the Canadian dollar functions de facto as a petrodollar, meaning that any further falls in oil prices directly weaken the CAD and support an increase in USD/CAD. Given the growing oversupply in the oil market and the expected increase in production by OPEC countries, the risk of continued pressure on oil prices remains real, which further favours the long side on this pair, following a fairly significant depreciation over the long term.

Although the money markets are pricing in a more hawkish shift in the Bank of Canada’s stance in the future compared to the current one, the spread in short-term yields between the US and Canada (1M: 3.64 vs. 2.25) still points to a carry trade in favour of the USD. However, we recommend exercising particular caution, as the fundamental environment for this pair may change rapidly and thus undermine the current basis for this recommendation.

Source: xStation

Methodology and assumptions:

The recommendation is based on a technical and fundamental analysis of the USD/CAD chart. Classical technical analysis was used to assess the situation and analyse the trend.