Surprising breakout helped by dollar weakness
Kevin Ford – FX & Macro Strategist
Markets were caught off guard by President Trump’s latest tariff threats targeting Europe and Apple. While stocks managed to recover some of their daily losses, they still ended the week in the red. Even more surprising was the nearly 2% drop in the U.S. dollar, which gave the Canadian dollar a boost, pushing it to a fresh 2025 low of 1.3712.
On Sunday, former President Trump agreed to push the deadline to July 9 following a phone call with European Commission President Ursula von der Leyen. Meanwhile, U.S. markets are closed today in observance of Memorial Day. The dollar remains unchanged, hovering near 99 without significant shifts in trajectory or sentiment.
If the Loonie closes the month below its 100-week simple moving average (SMA) of 1.375, it could signal a move toward the 1.35. A monthly close below 1.381, would mark four straight months of decline, something we haven’t seen since February to May of 2021.
On the macro side, retail sales in Canada had a solid showing in March, ticking up 0.8% to hit $69.8 billion. The boost mainly came from motor vehicle and parts dealers. If you strip out gas stations and auto sales, core retail sales still edged up by 0.2%.
Looking at the bigger picture, sales climbed 1.2% in the first quarter of 2025, marking the fourth quarter in a row of growth. And despite recent drops in consumer confidence, early estimates suggest April’s retail sales will stay strong, rising another 0.5% month-over-month.
Still, this momentum probably won’t sway the Bank of Canada ahead of its June meeting. The odds of an interest rate cut have slipped to 24%, meaning they’re likely staying put for now.
Fiscal to stay on focus
Kevin Ford – FX & Macro Strategist
For years, U.S. debt carried virtually no risk premium, and despite large budget deficits, markets didn’t seem to mind, until now. Ultimately, government borrowing costs come down to one thing: investor confidence in the U.S.’s ability to repay its debt.
Now, rising interest rates and slowing economic growth are setting the stage for what could turn America’s national debt into a real crisis. To put it in perspective: after Social Security, net interest payments are the largest expense in U.S. history. Servicing the debt alone now takes up around 4.5% of GDP, the highest among G10 countries. In other words, the U.S. now spends more on paying off its debt than on healthcare or national defense. That’s a staggering amount.
Bond markets are sending a clear message. The 10-year Treasury yield climbed over 20 basis points, while the 30-year broke past 5%, a level it hadn’t touched in 17 years, and stayed there. This isn’t just another rate shift; it’s a wake-up call.
You can’t run massive deficits, rack up debt, and assume borrowing costs will stay low forever. Investors aren’t questioning U.S. risk because the dollar is losing its reserve currency status, but because soaring deficits, while Treasury issuance at higher-rates are raising concerns about sustainability. Also, yields aren’t rising on growth optimism; they’re responding to fears about long-term creditworthiness. And we’ve seen this across G7 yields. When they start performing like emerging market debt, it’s not just about inflation or economic expectations anymore, it’s about credibility, debt stability, and erratic policy direction.
We’ve seen a version of this play out before. In 2022, the U.K. faced chaos when then Prime Minister Liz Truss pushed forward a tax-cut plan that threatened to blow up the budget deficit. Markets recoiled, long-term rates spiked, the pound plunged, and the country’s financial system came dangerously close to unraveling.
We’ll see if fiscal policy becomes clearer, and some of the uncertainty baked into long-term yields start to fade, helping ease market concerns. Until then, fiscal concerns stay front and center.
Peso continues gaining
The 20-day SMA has become a key short-term resistance level for the Peso at 19.50, a point where it gained nearly 1% against the U.S. dollar last week.
So far this year, the Peso has benefited from a global investor shift toward emerging and Latin American markets. The Mexican stock exchange has surged 17% YTD, as measured by the S&P/BMV IPC Index, while the Peso itself has climbed 8% against the USD.
After reaching 19.50 last week, the Peso has now slipped to 19.19. If bullish momentum continues, a move toward the 19 level could come into play. Market focus now turns to the October low at 19.1, which stands as the next major support. Much will depend on whether risk aversion eases and credit concerns fade, potentially paving the way for renewed demand in high-yield emerging market assets.
Dollar slightly rebounds after another tariff pause
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 26-30
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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