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USD/CAD looks an attractive risk to reward trade on an upside breakout in our view. Below, find a summary of the fundamentals and the key technical levels to look out for...

Global Economic Outlook and Fundamentals

The CAD is very sensitive to the global outlook for growth and also the price of commodities, particularly crude oil. “After enduring a prolonged and unprecedented series of shocks, the global economy appeared to have stabilized, with steady yet underwhelming growth rates. However, the landscape has changed as governments around the world reorder policy priorities, and uncertainties have climbed to new highs. Forecasts for global growth have been revised markedly down compared with the January 2025 World Economic Outlook." (WEO)

Global growth is slowing and unlikely to pick up anytime soon, and this is without tariffs coming into play. In terms of crude oil, it will see prices fall as global growth slows. In the latest assessment in mid-May, the IEA expects much slower growth in the coming quarters compared to the first quarter of 2025. The estimate for full-year 2026 demand growth is also close to the 2025 forecast and to last month’s already slashed projections—760,000 bpd. (CRUDEOIL PRICE.COM)

This ignores any solutions in terms of the Ukraine-Russia conflict or increased Iranian sales, if they come into play. In terms of the other side of the pair, the USD faced a broad-based sell-off but has shown some strength recently...

We think that the recent pullback in the USD is a buying opportunity: "U.S. bond yields offer tactical opportunities to lock in returns and the U.S. dollar is now in our fair value range against the euro, Japanese yen and Swiss franc," (Michael Strobaek, Global CIO of Lombard Odier's Private Bank division.)

Lombard Odier says further tariff progress, recovering sentiment, and U.S. corporate tax cuts should see U.S. stocks extend gains in line with global stocks would warn that a recent selloff in the Dollar and other U.S. assets is ending, building scope for an extension of the early May recovery.

Strobaek notes recent market moves are in fact “A healthy, if volatile, rebalancing of U.S. asset prices towards their fundamentals: The S&P 500 has largely recovered its levels of before the 2 April ‘liberation day’ tariff announcements (-0.6% lower this year) and is still relatively more expensive than other regions, but earnings expectations have been adjusted downward.” He continues:

“US government and investment-grade corporate bond yields remain among the most attractive within developed markets in real and nominal terms. As accords between the U.S. and the UK, and the US and China have demonstrated, stock markets are quick to respond to any indication that the Trump administration is rolling back its import tariffs,"

So the USD is oversold and its got a better yield than the CAD, and while we think 50 bps of cuts from the Fed is probably going to happen this year, which the market thinks, we think the Bank of Canada will cut rates more than the market expects.

Interest Rate Expectations

The market sees just one 25 bps cut from the Bank of Canada this year, but domestic data deterioration should in our view, see the Bank of Canada cut rates again in June. We think the Bank of Canada will cut rates at least twice and probably three times this year. On the US side of the equation, we have two 25 bps cuts discounted by the market.

Technical Analysis

We think the technical picture looks attractive in terms of risk to reward, and our view of the key technical levels are on the chart below. 

USDCAD 2025 05 15 18 07 45

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