USD/CAD Market Update

Current Level: Mid-1.35s (24hr range 1.3550 to 1.3588)

USD/CAD is trading at 1.3568 this morning, roughly 110 pips lower than Thursday's 1.3691 open and well below the 1.3596 to 1.3650 zone that defined this week's range. Today's intraday low of 1.3550 marks the lowest print since early April and brings CIBC's 1.3500 Q2 target within striking distance. The proximate driver is a USD-side story: Japanese authorities intervened in the yen overnight, sending USD/JPY down roughly 3% from above 160 to as low as 155.5 before stabilising near 157, which mechanically pulled the broader dollar index lower against the G10 basket. The Canadian leg gets a secondary tailwind from yesterday's GDP print, which has Q1 tracking at 1.7% annualised against the Bank of Canada's official 1.5% MPR projection.

Market Overview:

Risk appetite is firmly constructive into Friday. Equity markets opened at record highs with the Nasdaq Composite trading above 25,000 for the first time, per CIBC, in a continuation of the post-FOMC melt-up that has run for three consecutive sessions. The dollar index is broadly weaker, with the move concentrated in USD/JPY but spilling cleanly into G10 majors and commodity-linked currencies. Global bond yields are mixed with no major moves of note. WTI is holding above $105 per barrel and Brent above $114, with the Strait of Hormuz still effectively closed and the United States maintaining its naval blockade of Iranian shipping. The combination of softer USD, sustained energy bid, and a domestic data print that beats the Bank of Canada's forecast leaves USD/CAD pinned to the lows.

BoJ Intervention Drives Broad USD Lower:

Japanese authorities are widely understood to have intervened in the FX market overnight after USD/JPY traded above the 160 level that previously triggered official action in July 2024. Finance Minister Satsuki Katayama issued what she described as a "final" warning against speculators selling the yen earlier in the session, and the subsequent move down through 157 to as low as 155.5 has been near-universally attributed to direct yen purchases by the Bank of Japan acting on behalf of the Ministry of Finance. Per CIBC, Japan has spent an estimated $34.5 billion this week supporting the currency. The Ministry of Finance has not formally confirmed intervention, consistent with prior episodes. The market read is that USD/JPY above 160 has now been clearly established as the line in the sand for Japanese policymakers, and that further intervention is on the table if speculative selling resumes. The mechanical impact on USD/CAD is a function of the yen's heavy weight in the dollar index: a 3% move in USD/JPY is the largest single-day yen rally in nearly two years and has dragged the broader greenback lower across G10.

Iran Delivers Fresh Proposal via Pakistan:

Iran delivered a new negotiating proposal to Pakistan Thursday evening as part of the ongoing US-Iran mediation track, the first material development since the marathon April 11 to 12 talks ended without an agreement. The sticking points remain Iran's demand for control of the Strait of Hormuz and the US position on the Iranian nuclear and ballistic programmes. The new proposal has not yet driven a meaningful softening in oil prices: WTI is still above $105 and Brent above $114, with traders citing dimming prospects for a near-term breakthrough and the continued effective closure of the Strait. The development is supportive at the margin for risk sentiment but does not change the underlying energy-supply backdrop that has driven core inflation higher across the G10 since the conflict began.

Canadian Data/Outlook:

Canadian Q1 GDP momentum is beating expectations. February GDP rose 0.2% month-over-month as forecast, driven by a 1.8% jump in manufacturing on a rebound in auto assembly and machinery production, with wholesale trade and transportation also contributing. Per CIBC's economists, annualised Q1 growth is now tracking at 1.7%, comfortably above the Bank of Canada's 1.5% MPR projection released Wednesday. The flash estimate for March came in flat, however, suggesting momentum has stalled into Q2. The combination keeps the Bank of Canada on the sidelines and reinforces Wednesday's hawkish-on-margin hold. CIBC's Central Bank Watch now prices an 11% probability of a hike at the June 10 meeting and 0% probability of a cut, framing the next move as more likely up than down should oil-driven inflation persist into Q3.

Fed Watch:

The dovish repricing in US rates has been the under-the-radar move of the week. CME FedWatch now shows roughly a 51% probability of a hold and a 36% probability of one 25 basis point cut by the December 17 meeting, against a probability of just 10% for a cut as recently as yesterday's session. The shift is largely a function of broad USD weakness on the BoJ intervention rather than any Fed-specific signal, but it does walk back a portion of the hawkish premium that built up around Wednesday's three-dissent FOMC. CIBC's Central Bank Watch continues to show 0% probability of either a hike or a cut at the June 17 meeting, consistent with the no-change base case markets are positioned for in the near term. The risk for the December path is that further USD weakness, sustained risk-on flows in equities, and softer US labour data next Friday combine to extend the dovish repricing.

Technical Picture:

Resistance: 1.3650 first (this week's broken trendline, now resistance), then 1.3750 as the level CIBC strategists are watching to establish fresh shorts.
Support: 1.3526 first (April low), then 1.3500 as the CIBC Q2 target and a clean round number below.
Outlook: The break below 1.3596 confirms the technical bias has shifted lower. A clean close below 1.3550 today would open the path to 1.3500 directly, while any bounce is likely to be capped by sellers in the 1.3650 to 1.3750 zone. CIBC's strategists continue to favour selling rallies and hold their 1.3500 Q2 target intact.

Week Ahead:

Friday May 8 is the cluster of the next two weeks, with Canadian and US employment reports both releasing simultaneously at 5:30 AM Pacific. The US NFP forecast at 60K is a sharp deceleration from the prior 178K, and a softer print would extend the dovish Fed repricing already underway. The RBA on Monday is expected to deliver a 25 basis point hike to 4.35%, which would be the first major central-bank tightening since the BoJ's hawkish-hold split widened last week.

Other Notes:

• EUR/USD pushed back above 1.17 on Thursday after the European Central Bank's hawkish hold lifted the implied probability of a June hike to roughly 90%, with President Lagarde confirming a hike was actively debated despite the unanimous decision to hold.
• The Bank of England voted 8 to 1 to keep Bank Rate at 3.75% on Thursday, with Governor Bailey emphasising patience on supply-driven energy inflation and the gilt curve pricing in less tightening as a result.
• USMCA negotiations remain a known overhead risk for the Canadian dollar through the summer, with CIBC economists raising their CAD forecasts slightly to incorporate the impact while keeping a directional bias toward USD weakness into 2027.