The Canadian Dollar (CAD) is experiencing slight strengthening due to improved risk appetite but is not keeping pace with gains from other commodities. The narrow US/Canada spreads have supported the CAD, currently trading at an estimated fair value of 1.4196.
The Bank of Canada’s Q1 Business Outlook Survey indicates weakened business sentiment and heightened uncertainty about tariffs affecting hiring and investments. However, expectations for input prices are rising for the first time in two years.
Usd At Resistances
The USD appears to have peaked recently, with resistance levels identified at 1.4260/70 and firm resistance at 1.4400/20. Support levels are at 1.4150 and 1.4025/30.
We’re looking at a somewhat mixed but locally supportive backdrop for the Canadian Dollar. While CAD has managed to benefit slightly from improving risk appetite, it continues to lag behind currencies typically tied to resource exports. This slow pace isn’t entirely surprising, considering how Canada’s foreign exchange rate is often caught between global risk dynamics and domestic economic signals.
The fair value sitting around 1.4196 tells us that markets are broadly accepting of where the exchange sits now — though not without reservations. What’s worth noting is that US-Canada short-term interest rate spreads aren’t diverging much. This compresses the incentive for major moves in either direction and can keep things range-bound until more clarity surfaces, particularly from central bank commentary or inflation data.
Now, looking at what was shared in the most recent outlook survey, we’re seeing Canadian businesses express less confidence going forward, especially when it comes to hiring plans and capital commitments. Much of that hesitation seems to stem from uncertainty over trade policies. Tariffs, or the threat of them, are muddying visibility for business planners. If major firms are hitting pause, that caution often filters into the broader economy over time.
Shift In Price Expectations
One piece that should not go unnoticed is the sharp shift in price expectations. For the first time in two years, input costs are seen as likely to rise — potentially pointing to a pickup in cost-push inflation. If inflation pressure holds or expands, it alters what we might anticipate from the central bank later this year, in terms of policy stance or forward guidance. That sort of shift has tended to be picked up quickly on the rates side, and traders will be adjusting duration strategies accordingly.
Regarding technicals, the USD appears to have marked a short-term top, based on how the pair is responding around established resistance levels. We’re watching 1.4260–1.4270 as minor resistance, but a clear ceiling remains closer to 1.4400. Any firm activity above that region would likely require a macro surprise — either on the inflation path or geopolitics. Support isn’t too far below current levels, however. A drift to 1.4025 could easily occur without a major move in underlying fundamentals.
Through a volatility lens, it’s reasonable to expect short-term premiums to bump higher, especially around data releases with inflation or trade components. That also shifts how we might view near-dated option structures in CAD pairs. It’s the sort of environment where gamma risk increases, yet realised vol remains benign — so skew protection could become more expensive but still justifiable in delta-hedged setups.
For now, holding directional views may require greater patience. Markets are lacking a strong catalyst for a connected move right now, but cracks in the current price stability could emerge quickly, especially if labour market data begins to wobble or input costs push through more forcefully in producer margins.
