Canadian Dollar Update – Canadian dollar rallies after BoC pauses

• BoC left rates unchanged, and Loonie rallied
• Fed Chair Powell fears higher inflation.
• US trading defensively in narrow ranges

USDCAD: open 1.3892, overnight range 1.3855-1.3897, close 1.3858, WTI 63.16, Gold 3321.41

The Canadian dollar has had a topsy-turvy 24 hours and opened today about 100 bps higher than yesterday. That is because the Bank of Canada left rates unchanged at 2.75% and Fed Chair Jerome Powell reignited US recession fears.

Both Macklem and Powell are clearly rattled by tariff turmoil. Each flagged the chaotic US trade policy as a wrecking ball for global growth—Macklem called it a “dramatic protectionist shift,” while Powell pinned “elevated uncertainty” on sweeping tariff changes. Both agreed tariffs mess with inflation from both ends—boosting costs while choking growth. Macklem warns it complicates forecasting; Powell says the inflation bump depends on how bad and how long. Inflation’s running warm in both countries—2.3% in Canada, 2.6% core PCE in the US.  Powell and Macklem are parked in neutral, waiting for clarity before shifting gears.

Asian stock markets shrugged off the negative close on Wall Street, with investors stepping in to buy equities. Optimism around renewed trade discussions between Japan and the US lifted Japan’s Topix index by 1.29%. In Australia, the ASX gained 0.78%, buoyed by stronger gold prices. European bourses are in negative territory with the UK FTSE leading the way with a loss of 0.70%.S&P 500 futures advanced 0.34%, while the US 10-year Treasury yield held steady at 4.30%. Gold (XAUUSD) is consolidating recent gains, trading at 3326.77.

EURUSD traded in a 1.1344–1.1410 range and is treading water ahead of the European Central Bank’s decision this morning. Markets have fully priced in a 25 basis point rate cut to 2.50%. Any fresh forward guidance is likely to echo recent remarks from the Bank of Canada and the Federal Reserve, highlighting the uncertainty created by ongoing tariff risks. In Germany, Producer Prices declined by 0.2%, down from the prior 0.7%.

GBPUSD ranged between 1.3203 and 1.3260, holding firm above the 1.3200 level but unable to surpass yesterday’s highs. The pair is supported by a softer US dollar and speculation that a trade agreement between the UK and US may be within reach.

USDJPY traded in a 141.62–143.09 range and managed to recover the ground lost after Powell’s comments. The pair opened near yesterday’s close as investors awaited updates from US-Japan trade talks in Washington. So far, no major breakthroughs have been reported.

AUDUSD moved within a 0.6334–0.6377 band, staying inside yesterday’s range. The Australian labour market report had little market impact, despite a net gain of 32,200 jobs following a loss of 57,500 the previous month. Ongoing US dollar softness and hopes for renewed China-US dialogue are lending support. Traders still anticipate that the Reserve Bank of Australia will lower rates by 25 basis points in both May and July

Today’s US data includes Building Permits, Housing Starts, weekly jobless claims, and Philadelphia Fed. There are no Canadian reports of note.

European, US and Canadian markets are closed tomorrow.