US / Canadian Dollar - FX Monthly Outlook

Economic Outlook and SummaryMay turned out to be more bark than bite. Markets braced for tariff fallout, Fed pivot signals, and a growth scare—but what they got was a sideways drift and more questions than answers. Trump’s April tariff barrage still casts a long shadow, but foreign retaliation has been conspicuously restrained—so far.Gold, after its April melt-up, corrected to around $3,270 before rising again in early June. Meanwhile, equities rebounded hard. The S&P 500 closed May at 5,903.11, reversing all of April’s losses on stable earnings and waning Fed-cut expectations.The U.S. 10-year jumped from 4.16% to 4.38% as sticky core inflation and Fed pushback priced out a summer cut. Market confidence is growing that a recession may be avoided, but tariff headlines remain a wild card.Looking ahead, June features a packed calendar including the June 12 US inflation numbers and the June 19 FOMC decision. The USD and Federal ReserveThe greenback slipped into June on the defensive, with the DXY drifting to 98.64 in the latter half of the month after topping out at 101.69 on May 12. Traders adjusted to the Fed’s stubbornly hawkish tone, but inconsistent data kept the dollar from breaking down outright.Fed Chair Powell and his colleagues spent the month reinforcing a “higher-for-longer” script, and May’s PCE report offered them cover. Inflation isn’t accelerating, but it isn’t decelerating enough to trigger an imminent cut either.Trump’s latest rants about the Fed and strong dollar landed with a dull thud, barely moving markets. The lack of fresh fiscal or monetary drama left the USD to follow yields and risk flows.For June, DXY could stay under pressure ahead of the June 12 CPI release and June 19 Fed decision. The reaction to Trump’s demand for countries to present their “Final Offers” on tariffs will also reverberate through markets this month. Without a sharp inflation drop or risk-off shock, the Fed will stay on hold—and the dollar will likely trade choppily between 98.50 and 101.00.The Canadian Dollar and Bank of CanadaThe Canadian dollar found a bottom in the middle of May then rallied steadily. Its gains had little to do with domestic influences but were driven by broad-based U.S. dollar selling pressures as traders weighed in on the impact of Trump’s tariff policies on the U.S. and global economies.Canada’s economic growth was a solid 2.2% in Q1, which handily beat the 1.7% that was expected. However, the gains were tainted because they were due to an increase in exports as American companies front-ran tariffs.Canadian headline inflation cooled, but the rise in the Bank of Canada’s measures of core inflation took a June rate cut off the table. That was confirmed June 6 when the BoC left rates unchanged at 2.75% due to higher inflation and trade uncertainty.Things may improve for Canada after the June 18 G-7 meeting when some sort of new U.S./Canada trade deal will reportedly be announced.Oil PricesWTI found a bottom at 55.16 and rallied to 64.29 on May 21, then consolidated the gains in a 59.70–63.10 range. Traders were concerned that OPEC would announce a substantial production increase for July 1, which didn’t happen.The June outlook suggests further range trading for WTI in a 60–66 range with upside momentum building if macro data cooperates and Trump’s tariff threats remain just that—threats.Bank 2025-USD/CAD Q2 2025-USD/CAD Q3Scotiabank* 1.4300 1.3800BMO 1.3900 1.3800CIBC 1.3900 1.3800TD Bank* 1.3900 1.3800National Bank 1.4200 1.3900*Forecast is based on last month. Does not include post Tariff moves. Forecast Table is for mid-market rates, and subject to change anytime.