Canadian Dollar Holds Range as Trade Uncertainty Looms

CAD Holds Steady Amid Tariff Uncertainty and Yield Spread Support

Canadian Dollar Ranges on Lack of Trade Clarity

The Canadian Dollar (CAD) trades flat on Monday as investors await more clarity on trade negotiations between the US and Canada. Currency markets remain cautious, with the CAD holding within a narrow range and showing no clear breakout amid geopolitical and policy uncertainty.

Tariff Talk Adds Pressure, but Spreads Offer Support

Commerce Secretary Howard Lutnick commented over the weekend that while US/Canada/Mexico trade remains largely tariff-free, tariffs could be used as leverage to push Canadian markets open. This ongoing uncertainty limits the Bank of Canada's (BoC) flexibility to implement deeper rate cuts.

Meanwhile, Canadian short-term interest rates have risen 40bps from their April low — double the rise seen in US 2-year yields. This spread compression offers mild support to the CAD, especially in the absence of major market-moving news.

“Yield spreads are doing their part in keeping the CAD from breaking down, even as trade uncertainty clouds the macro outlook,” analysts noted.

BoC Business Outlook Survey in Focus

Later today, the Bank of Canada’s Q2 Business Outlook Survey (10:30 ET) is expected to provide further insights into how Canadian firms view current trade dynamics, inflation pressures, and growth expectations. Markets may react if sentiment deteriorates more than expected.

Key Takeaways

• CAD remains flat amid lack of clarity in US-Canada trade negotiations
• Canadian short rates up 40bps since April, supporting CAD via spreads
• Tariff uncertainty limits BoC's room for further rate cuts
• BoC’s Q2 Business Outlook Survey will guide next market move

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