USD/CAD Market Update

Current Level: Mid-1.39s, holding at year-to-date highs (24hr range 1.3926 to 1.3954)

USD/CAD starts the week in the mid-1.39s, consolidating just below 1.3954 after three consecutive closes above the 1.3932 level that had capped rallies all year. Risk sentiment is recovering after Friday's technology-led equity slump, and the focus now shifts to a dense Wednesday calendar that pairs US inflation data with the Bank of Canada decision.

Market Overview:

Risk appetite is positive this morning. Equity markets are bouncing as the major US indices attempt to recover from Friday's selloff, which pulled the Nasdaq roughly 5.6% off its all-time high (CIBC). The US dollar is mixed against the G10 basket, taking a breather after reaching two-month highs in the wake of last week's strong payrolls report (CIBC). Global bond yields are mixed, having initially risen on Israel-Iran strikes over the weekend before fading as both sides signaled de-escalation (CIBC). USD/CAD continues to trade off the relative front-end rate story, which keeps the pair anchored near its highs rather than trending.

Wednesday Brings CPI and the Bank of Canada Together:

The defining event of the week is a Wednesday morning that stacks two major catalysts within roughly an hour. US CPI for May is released at 5:30am Pacific, followed by the Bank of Canada decision at 6:45am. CIBC economists look for US headline inflation to move back above 4% year over year, with the strength largely energy-driven. The bar for a market reaction is therefore higher and rests on the core release. Any upside in core inflation would reinforce stickier underlying price pressure and the Federal Reserve's higher-for-longer narrative. Consensus in our calendar is for headline CPI at 4.2% year over year, up from 3.8%, with core at 2.9%. For USD/CAD, the back-to-back releases concentrate event risk into a single window and argue for caution around the Wednesday open.

Canadian Data/Outlook:

The Bank of Canada announces on Wednesday at 6:45am Pacific, and CIBC expects Governor Macklem and the Governing Council to remain firmly on hold. CIBC's Central Bank Watch shows markets pricing a 0% probability of both a cut and a hike, consistent with a fifth consecutive hold at an overnight rate of 2.25%. Ahead of that, Canada's April trade balance is due Tuesday, where CIBC economists expect the surplus to widen on higher oil prices and early signs of a recovery in manufacturing. CIBC notes the trade figure is not a major market mover given its backward-looking nature and heavy oil weighting, leaving Wednesday's rate decision as the domestic focus.

Fed Watch:

The market continues to price the Federal Reserve out of any near-term easing following last week's strong US payrolls report. CIBC's Central Bank Watch shows a 0% probability of a cut at the June 17 meeting and a 1% probability of a hike, leaving the higher-for-longer path intact. Wednesday's CPI is the next test of that view. A soft core print would do little to revive cut expectations given the labour data, while an upside surprise would harden the case for rates staying elevated. The probability of a Fed cut by December remains in the low single digits, little changed on the week.

Technical Picture:

Resistance: 1.3970 marks the top of CIBC's near-term 1.3900 to 1.3970 range, with the 1.4000 psychological level the next hurdle beyond. Recent session highs at 1.3952 to 1.3954 are the immediate barrier.
Support: 1.3932, this year's former cap, now acts as first support after three closes above it. 1.3900 is the floor of CIBC's near-term range, with 1.3869 below.
Outlook: CIBC strategists have lifted their near-term view to a 1.3900 to 1.3970 range for the week ahead while keeping their 1.3400 year-end target unchanged, describing current levels as an attractive entry point for US dollar sellers. The bias is for continued consolidation near the highs into Wednesday's events.

Week Ahead:

Wednesday is the focal point, with US CPI and the Bank of Canada decision arriving within roughly an hour. The ECB decision on Thursday adds a second central bank event, with consensus looking for the refinancing rate to rise to 2.40% from 2.15%.

Other Notes:

• Precious metals are rebounding after Friday's selloff, with silver attempting to hold its 200-day moving average, a level that has held since April 2025 (CIBC).
• Equity markets are recovering after Friday's technology-led decline, with the Nasdaq having fallen roughly 5.6% from its all-time high (CIBC).
• CIBC strategists continue to view the mid-1.39s as an attractive entry point for US dollar sellers, with an unchanged 1.3400 year-end target.