Geopolitical tensions, weak Canadian employment data, and a bullish technical reversal pattern have pushed the short-term risk balance for USD/CAD to the upside, although a meeting between the leaders of the US and China later this week may marginally limit gains.



Iranian optimism fades again

Trump posted on social media late Sunday night (May 10) that he did not approve of Iran's latest counter-proposal for peace talks—"completely unacceptable." This statement worsened risk sentiment in early Asian trading on Monday, adding additional upward support to the USD/CAD pair.

Economic polarization widens

Last Friday's jobs report reinforced the divergence in economic signals between the US and Canada: US nonfarm payrolls increased by 115,000 in April, nearly double the expected figure; while Canada unexpectedly lost a net 17,700 jobs. Although the underlying details of the US report were weaker than the headline data (participation rate fell 0.2 percentage points to 61.4%, household employment declined again), it still contrasted sharply with the deterioration in Canada—where full-time jobs plummeted by 46,700 and the unemployment rate climbed to 6.9%, a six-month high.

Canadian data prompted markets to significantly postpone their expectations for the Bank of Canada's first rate hike to the second half of the year. Overnight index swap pricing indicated that September was considered the first truly "feasible" rate hike meeting, with an implied probability of about 64%; while October was fully priced in a 25 basis point rate hike. In contrast, a stronger US non-farm payroll report had little impact on front-end Fed pricing, with futures traders continuing to price in an unchanged federal funds rate for the entire year of 2026.

China-US Leaders Meeting

While the US still has inflation and retail sales data to release this week, Friday's non-farm payroll report once again highlights that in the current environment, unless economic data can substantially change interest rate expectations, the data itself is unlikely to dictate the overall market direction. The Canadian economic calendar is relatively quiet; geopolitics, market sentiment, and technical factors are likely to remain more influential for USD/CAD.

Traders should also pay attention to the meeting between the leaders of China and the United States on May 14-15. Historically, the US government may boost market sentiment before the meeting with more optimistic rhetoric (regarding whether it concerns trade relations with China or the prospects for easing tensions with Iran). If this happens, it could help stabilize overall risk sentiment and marginally limit the upside potential of USD/CAD, especially after a significant rebound from last week's lows.

Technical bullish signals are gradually accumulating.

The current price of 1.3686 has risen above the MA20 (1.3664), a positive short-term technical signal. However, the 1.3716-1.3724 area above is a strong resistance zone formed by the convergence of the MA60, MA100, and MA50 moving averages. Further up, the MA120 (1.3750), MA240 (1.3791), and MA200 (1.3813) form layers of resistance. This means that although a short-term rebound trend has been established, the dense resistance above requires stronger momentum for a breakout.


(USD/CAD daily chart, source: EasyForex)

At 13:21 Beijing time on May 11, the USD/CAD exchange rate was 1.3689/90.