Canadian Dollar: Soft CPI delays recovery – TD Securities

FXStreet Insights Team FXStreet

TD Securities’ FX strategists Howard Du and Linda Cheng note that soft April Canada inflation and weak employment data should keep USD/CAD supported near 1.37 in Q2 2026. They argue BoC rate hike pricing for 2026 still has room to fall, with a more sustained USD/CAD downtrend only expected to develop in H2 2026 as Canadian data improve and USMCA risks ease.

USD/CAD stays supported before H2 downtrend

"April CPI surprised to the downside with inflation firming to 2.8% y/y as prices rose by 0.4% m/m, falling short of expectations (TD & market) for a larger acceleration to 3.1% y/y."

"The broad thaw across various core inflation measures alongside further improvement in measures of inflation breadth should allow the Bank of Canada to continue looking through the impact of higher energy prices at the June meeting."

"We expect USD/CAD to stay supported in the near-term and forecast the pair to be at 1.37 in Q2. Weak employment data and soft inflation data for April continue to suggest more sustained USD/CAD downtrend will only start to form in the second half of this year."

"The soft Canada inflation data further confirms our view that USD/CAD would stay supported on a 1.37-handle for the near-term. Near-term bearish drivers remain elusive for this pair, as we believe the BoC rate hike pricing for 2026 still has room to fall. We expect more sustained USD/CAD downtrend to form in H2 2026, when economic data for Canada show more decisive signs of improvements and USMCA uncertainty starts to wane."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD clings to daily gains near 1.3350

GBP/USD holds just in positive territory around 1.3350 on Friday as the Greenback keeps a vacillating price action. With Fed rate hike expectations easing and US markets closed for the Independence Day holiday, Cable remains on track to post solid weekly gains.

EUR/USD remains sidelined around 1.1440

EUR/USD holds on to its recent gains and consolidates around 1.1440 at the end of the week as the US Dollar lacks clear direction. In the meantime, trading conditions remain subdued, with volatility constrained by the closure of US markets for the Independence Day holiday.

Gold flirts with two-week highs, targets $4,200

Gold extends its recovery for a third straight day, advancing toward the $4,200 mark per troy ounce on Friday. The precious metal looks set to snap a four-week losing streak as softer-than-expected June US NFP data prompt investors to scale back expectations of further Fed tightening.

Crypto Today: Bitcoin, Ethereum, XRP advance amid renewed capital inflows

Bitcoin maintains its upward momentum, holding above the $61,000 mark at the time of writing on Friday. Major altcoins such as Ethereum and Ripple are also posting gains, signaling a modest uptick in market sentiment and renewed risk appetite among investors.

The Iran war failed to trigger a recession. Can the US economy keep defying expectations?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Kevin Warsh offers no policy clues: Why markets still got their answer

Financial markets came to Sintra looking for clues about the Federal Reserve's (Fed) next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.