USD/CAD is nearing 1.3900 as the Canadian Dollar weakens ahead of important events. The pair is up 0.34% at 1.3880 as the markets await the Bank of Canada’s Financial System Review and a potential US-UK trade agreement announcement.

The BoC’s Financial System Review assesses Canada’s financial stability risks like household debt and credit conditions. It provides insights into potential economic vulnerabilities that could affect future rate guidance or regulatory measures.

Potential Us Uk Trade Agreement

President Trump is expected to announce a new US-UK trade agreement, which might influence future bilateral trade. This could impact the Canadian Dollar if it opens new trade opportunities for North American commodities.

The USD/CAD pair gains momentum, breaking above the 10-day Simple Moving Average at 1.3832 but remains limited by resistance near 1.3900–1.3944. The pair has support at the November low of 1.3823; a drop below could shift focus to deeper support at 1.3713.

Factors influencing the Canadian Dollar include interest rates, oil prices, economic health, and inflation data. The BoC manages inflation through interest rate adjustments, and oil price fluctuations directly impact the CAD due to Canada’s export reliance. Economic data releases like GDP and PMI figures also influence the currency’s value.

Monetary Policy And Economic Indicators

As USD/CAD hovers just under the 1.3900 level, we note the uptick has coincided with a softening in the Canadian Dollar, potentially triggered by upcoming macro events that lean towards caution in Canadian markets. The pair advancing to 1.3880 reflects this sentiment shift, with the US currency gaining traction as markets gear up for the Bank of Canada’s Financial System Review and developments related to international trade, specifically discussions across the Atlantic.

To unpack the current status, let’s start with the BoC’s report due shortly. This review, which is not normally market-moving in the way a rate decision might be, carries more weight this time. It focuses on vulnerabilities—household debt being one of the main ones—that could require regulatory tightening or indirectly steer policy tone in future communications. From our view, market participants will likely parse through any reference to increased financial stress or imbalances, especially if linked to tighter lending conditions or real estate exposure. If there’s a perception that cracks are growing in domestic economic resilience, bond yields may react and influence CAD through rate expectations.

Meanwhile, trade headlines are choking up the wires again, with an expected update on the US-UK agreement. While Canada is not explicitly included, the indirect effect is worth watching. If this arrangement appears to favour US-based exporters, there could be relative headwinds for comparable Canadian goods—especially in shared sectors like energy and agriculture. That, in turn, may pressure CAD further, even if temporarily, by adding to the argument that the US economy could outperform North America more broadly.

Technically, the pair remains sturdy above the 10-day SMA, last located at 1.3832. Buyers have held the line since reclaiming this short-term support. However, the next zone between 1.3900 and 1.3944 appears sticky. That cap has consistently slowed upward moves, suggesting a clear breakout will require a defined catalyst—either a dovish BoC interpretation or a move in crude that underpins USD strength. Below current levels, the first downside trigger lies around 1.3823. Should that give way, we’re likely to see funds test the 1.3713 area, where broader support kicks in.

Outside expected events, we see the usual inputs for CAD still holding weight. The Bank’s stance on inflation will steer medium-term expectations, and with recent core CPI readings not retreating as fast as preferred, they may feel boxed in. Similarly, crude oil remains a pivotal driver. A leg down in energy prices, particularly if paired with global demand doubt, won’t help CAD’s case. Finally, wider macro data—like GDP growth and purchasing activity—offers insight into domestic strength. If those turn softer in tandem, we’d expect more defensive positioning in favour of USD.

From our desks, daily price action remains fluid but anchored in how economic narratives are shifting beneath the headlines. Keep an eye on volume as we approach key zones. Any move with conviction could set the tone for June positioning while volatility remains modestly compressed.

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