USD/CAD Market Update

Current Level: Low-1.42s, near year-to-date highs (24hr range 1.4175 to 1.4218)

USD/CAD starts the week in the low-1.42s, close to its highest levels of the year, with overnight trade muted. A holiday-shortened calendar collides with a dense run of US labour data. Canadian markets are closed Wednesday for Canada Day and US markets are closed Friday for Independence Day. Thursday's nonfarm payrolls report is the main event.

Market Overview:

Risk appetite is recovering after last week's equity selloff, with stocks opening higher. The US dollar trades firm and near multi-month highs, supported by a higher-for-longer Federal Reserve and a wider US rate advantage. CIBC strategists keep a bearish medium-term view on the dollar, but flag that USD/CAD is trading roughly two standard deviations above their estimated fair value. Speculative dollar positioning looks stretched, which leaves the week's data with two-sided risk for the pair.

US Labour Data Drives the Week:

The week is dominated by US employment releases ahead of Thursday's nonfarm payrolls report for June. CIBC economists expect hiring to slow to 110,000 from 172,000, with average hourly earnings cooling to 0.2% from 0.3%. The broader consensus is near 114,000, with wages at 0.3% and the unemployment rate steady at 4.3%. Job openings and ISM manufacturing arrive earlier in the week and will shape expectations into Thursday. CIBC views a softer payrolls print as marginally US dollar negative, reinforcing a patient Fed and easing near-term rate-hike concerns.

CUSMA Review Trigger on July 1:

The six-year joint review of the Canada, United States and Mexico Agreement is triggered on July 1, the same day Canadian markets are closed for Canada Day. Under Article 34.7, the date opens the review rather than imposing a hard settlement deadline. US Trade Representative Jamieson Greer has said the parties are unlikely to resolve all issues by July 1, which would push the process toward annual joint reviews rather than an immediate sixteen-year extension. For USD/CAD, the review reads more as a confidence test around trade rules and market access than an immediate breakdown risk, but it adds to the uncertainty weighing on the Canadian dollar. (Source: Congressional Research Service; trade-policy reporting.)

Canadian Data/Outlook:

Canada's April GDP is due Tuesday. CIBC economists expect a gain of 0.4% after March's 0.1% decline, and note that a firm May advance estimate could put early second-quarter tracking in the 2.0% to 2.5% range. They caution that temporary factors, including oil production and World Cup-related activity, may overstate underlying strength, with growth likely to slow again in the third quarter. CIBC expects a solid print to reduce recession worries but not to change the Bank of Canada path, citing enough slack to keep the Bank on hold through the rest of 2026. The next BoC decision is July 15, where markets price no change. (Source: CIBC Economics.)

Fed Watch:

Markets continue to lean toward a higher-for-longer Fed under Chair Kevin Warsh. CIBC's Central Bank Watch places the odds of a 25 basis point hike at the July 29 meeting at 30%, with no cut priced. Warsh speaks Wednesday at the European Central Bank's annual forum but is not expected to offer fresh forward guidance, leaving payrolls as the week's key input on the rate path. A softer labour reading would support the case for a patient Fed. (Source: CIBC Economics.)

Technical Picture:

Resistance: 1.4248 (last week's high), then 1.4296.
Support: 1.4169 (this week's low shelf), then 1.4151, the level that has held since mid-June; a sustained break exposes 1.4024.
Outlook: The pair holds near year-to-date highs with momentum favouring the topside while US data stays firm. CIBC keeps a year-end target of 1.3700 and flags the stretched valuation, which it notes has historically led to a reversal within a month more than 60% of the time. A soft payrolls print is the most likely trigger for a move back toward the mid-1.41s.

Week Ahead:

This week is about US payrolls. The Canadian calendar front-loads with GDP on Tuesday, then thins out around the Canada Day holiday. Job openings and ISM manufacturing earlier in the week, plus the ADP employment survey, will shape expectations into Thursday. With both Canadian and US markets partly closed midweek and Friday, liquidity will be thin and price action may exaggerate moves.

Other Notes:

• WTI crude briefly retook US$70 a barrel after the United States and Iran agreed to halt attacks and resume talks following the weekend escalation. Flows through the Strait of Hormuz have continued to normalise.
• CIBC expects the market to fade the oil bounce as tensions ease. A fading crude risk premium removes a support for the Canadian dollar and pressures Canada's terms of trade.