The Canadian Dollar (CAD) has weakened amid a broader recovery in the US Dollar (USD). The movement to the mid/upper 1.37 range mainly reflects the USD rebound rather than any negative developments in Canada.

The CAD’s negative correlation with risk remains, despite gains in stocks. The latest IMM data showed a rise in net CAD shorts, influenced by weak economic data and speculation on the Bank of Canada’s policies.

Core Inflation And Us Tariffs

Core inflation and uncertainty around US tariffs may cause the Bank of Canada to maintain its position. The CAD’s strong recovery from the 1.40 level may further challenge the increase in short positions since May.

USD has moved beyond the 1.3745/50 range, previously a support level for USDCAD. Technical indicators suggest bearish sentiment for the USD over various timeframes, with expected resistance near 1.3785/1.3815 and minor support around 1.3740 and 1.3685/90.

What we’ve been seeing lately is more about strength in the US dollar rather than any specific weakness in the Canadian economy. The recent move for USDCAD into the higher 1.37 levels doesn’t reflect deterioration north of the border — if anything, domestic conditions have been relatively steady, though not without headwinds. The uptick in US dollar demand, particularly post-FOMC rhetoric and persistent US resilience, is what’s pushing this pair upward. Still, we can’t ignore the fact that short CAD positions have climbed, which tells us markets are beginning to lean more into bearish sentiment on the loonie — even if they aren’t entirely sold on that view yet.

From the futures data, it’s clear that the positioning against CAD has grown more crowded. That was likely fuelled by patchy economic prints and the idea that policymakers in Ottawa might stay cautious. Traders are starting to anticipate a potential pause extending into later in the year, especially with sticky inflation figures and global trade tensions adding more uncertainty. Wilkins and others at the Bank are unlikely to make dramatic corrections unless the data forces their hand. That’s why traders may want to resist overcommitting just yet — the path between inflation staying stubbornly high and the need to support economic activity isn’t going to be smooth.

Usdcad Momentum Shift

Now, the fact that USDCAD has punched through what had been a reliable floor near 1.3745 can’t be ignored. That level had previously acted as a buffer zone and its break might invite more upward momentum in the short term. From a tactical perspective, resistance is now lining up around the 1.3785 to 1.3815 zone — a stretch that previously capped bullish attempts and may do so again, particularly with broader dollar positioning already stretched. Meanwhile, softer spots just under 1.3740 and again near 1.3685/90 might offer moments of pause or reversal depending on how incoming data shapes expectations.

Technical views still lean against the dollar longer-term, but that doesn’t mean price action can’t push higher in the interim. Momentum is fickle here — short-term setups suggest more range-tight trading unless there’s a surprise on either side of the macro data. If key inflation figures from the US flare up again or if trade policies get reactionary, things may move faster than models predict. Volatility, though mild right now, may not stay compressed if those layers begin to stack.

So, in terms of positioning, it’s about managing bias rather than betting on extremes. Let the levels break before chasing. The asymmetry is real here — tighter rate differentials, softer risk appetite correlations, and technical resistance all argue for sharper moves in both directions.

Create your live VT Markets account and start trading now.