USD/CAD Likely To Remain Range Bound In Short Term, RBC says Ahead of Federal Govt and BoC Updates
RBC Capital Markets expects a "steady" Bank of Canada next week, with communications from the central bank "likely to lean more hawkish" than at the March meeting, given data has stabilized over the last month.RBC in its regular 'CAD Weekly Soundbites' note Friday said its view remains the BoC is on hold in 2026 and hikes in 2027, with risks of hikes being brought forward into the second half of 2026 greater ("but a slow burn evolution") than the ("small") chance of cuts this year. The annual review of the neutral rate should see no change to the 2.25-3.25% range, it added.On CA/US spreads, RBC noted uncertainty on the Iran conflict has seen CA rates outperform US counterparts, with the CA/US 10y spread at -84bp from -79bp last Friday.From a technical perspective, RBC's George Davis said a daily close below fanline resistance at 3.44% would sustain the recent downtrend in CA 10-year yields, exposing the recent low at 3.39% and the March 18 low at 3.36% thereafter. Initial support is located at 3.50% and 3.55%, with a return above 3.62% required to nullify the bullish view for bondds.Ahead of the BoC meeting, RBC noted, Tuesday's fiscal update from the federal government is "more likely to see an improved fiscal track". For the fiscal update, RBC does not anticipate major changes to spending plans after the governing Liberal Party secured a majority in parliament earlier this month. Risk skew is to lower deficits/better fiscal numbers in both the just completed FY25-26 and the current FY26-27, RBC said.USD/CAD is likely to remain range-bound in the short-term, unless the US-CA rates spread narrows more quickly than priced, or markets attach a higher risk premium on U.S. assets, RBC added.