TD Securities’ FX strategists Howard Du and Linda Cheng observe that smooth April Canada inflation and weak employment information ought to preserve USD/CAD supported close to 1.37 in Q2 2026. They argue BoC fee hike pricing for 2026 nonetheless has room to fall, with a extra sustained USD/CAD downtrend solely anticipated to develop in H2 2026 as Canadian information enhance and USMCA dangers ease.
USD/CAD stays supported earlier than H2 downtrend
“April CPI stunned to the draw back with inflation firming to 2.8% y/y as costs rose by 0.4% m/m, falling in need of expectations (TD & market) for a bigger acceleration to three.1% y/y.”
“The broad thaw throughout numerous core inflation measures alongside additional enchancment in measures of inflation breadth ought to permit the Financial institution of Canada to proceed wanting via the influence of upper power costs on the June assembly.”
“We count on USD/CAD to remain supported within the near-term and forecast the pair to be at 1.37 in Q2. Weak employment information and smooth inflation information for April proceed to counsel extra sustained USD/CAD downtrend will solely begin to kind within the second half of this 12 months.”
“The smooth Canada inflation information additional confirms our view that USD/CAD would keep supported on a 1.37-handle for the near-term. Close to-term bearish drivers stay elusive for this pair, as we consider the BoC fee hike pricing for 2026 nonetheless has room to fall. We count on extra sustained USD/CAD downtrend to kind in H2 2026, when financial information for Canada present extra decisive indicators of enhancements and USMCA uncertainty begins to wane.”
(This text was created with the assistance of an Synthetic Intelligence software and reviewed by an editor.)
