The Canadian dollar weakened as US-Canada trade talks resumed, with USD/CAD trading in the mid-1.38s and underperforming the rest of the G10. Canadian data have been sparse, although Bank of Canada official Carolyn Rogers referenced weak Q1 GDP alongside firmer indications of growth in April. US-Canada yield spreads were described as stabilising, offering some support to the currency.
Positioning metrics pointed to ongoing demand for upside protection in USD/CAD, with reversals said to track spot closely. Scotiabank’s fair-value estimate for the pair has risen to 1.3741. In technical terms, the move was framed as neutral-to-bullish: momentum was characterised as strengthening as the RSI moved into the mid-60s, while near-term price action was seen contained within a 1.3800 to 1.3900 range with limited resistance ahead of 1.3900.
Technical and Fundamental Drivers of CAD Underperformance
We are seeing the Canadian dollar underperform as USD/CAD trades in the mid-1.38s, with technical indicators showing bullish momentum. This trend appears likely to continue, presenting an opportunity for us to position for further CAD weakness. We anticipate the pair will test the upper end of a 1.3800 to 1.3900 range in the coming weeks.
This outlook is reinforced by recent economic data divergence. Statistics Canada just reported May’s inflation rate at a slightly softer-than-expected 2.6%, giving the Bank of Canada room to remain patient. In contrast, the latest US jobs report showed a solid gain of 210,000 positions, supporting a more hawkish stance from the Federal Reserve and strengthening the US dollar.
Trading Strategy: USD/CAD Option Positioning
Given this, we are considering buying USD/CAD call options. Specifically, we find options with a 1.3900 strike price expiring in late June or early July to be attractive. This strategy provides a defined risk for capitalizing on a potential move toward and beyond this key psychological level.
The market is already pricing in this risk, as evidenced by the rising premium for options that protect against CAD weakness. Historically, the 1.3900 level served as significant resistance back in late 2025, making it a critical target to watch. We will manage our positions carefully as the spot price approaches this area.
