Canada Enters Technical Recession, Casting Doubt on BoC Rate Hikes

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3700-1.3950

Euro                1.5880-1.6130

Sterling           1.8490-1.8740

WTI Oil (opening level) $89.91

The CAD/USD is opening at 1.3830 ( 0.7231 )

The Canadian Dollar is facing notable headwinds following unexpected data showing that Canada’s economy has entered a technical recession. With first-quarter real GDP contracting and previous growth figures revised downward, market optimism for a swift economic recovery has faded. This economic setback, paired with growing labor market slack, has led major financial institutions to heavily challenge aggressive interest-rate hike expectations from the Bank of Canada, clouding the near-term outlook for the local currency.

Canada's latest growth figures have cast doubt on a near-term economic turnaround. Because of these underlying domestic struggles and a softening labor market, the arguement can be made that further monetary tightening is highly unlikely until late in the year at the earliest, suggesting that any future strength against the US Dollar will depend entirely on external factors.

Headlines

• The US trade deficit narrowed in April as record exports of oil and petroleum helped offset a continued surge in imports of capital goods key to the AI boom. The shortfall fell to USD 82.4 billion with exports rising 4% and imports up 1.9%. In April, the US exported a record volume of more than 6.4 million barrels a day, according to US Energy Information Administration data, while shipments of fuels including gasoline, diesel and jet also surged.
• Oil climbed from a six-week low amid uncertainty over US-Iran peace deal possibilities, with both seeking changes over the weekend to a draft agreement that would extend the ceasefire and open the Strait of Hormuz. Israel, meanwhile, increased its ground assault in Lebanon as Hezbollah stepped up attacks in Northern Israel. Trump said his proposed deal states clearly that Iran will not have nuclear weapons and Iran shall fully restore free passage of the strait.

Key Points

• Equities: US and Europe climbed on AI and peace hopes, while Asia extended the chip-led rally despite firmer oil.
• Volatility: VIX subdued, payrolls week, ECB and US data in focus
• Digital Assets: Bitcoin and Ethereum softer, CME launches 24/7 crypto trading, constructive crypto-equity flow
• Fixed Income: US treasury yield rebound slightly from Friday’s local lows.
• Currencies: The US dollar pulls back after unconvincing sell-off Friday. JPY weak after scale of recent intervention revealed.
• Commodities: Oil rebound from six week low, gold dips and copper gains ahead of US tariff deadline