USD/CAD Market Update

Current Level: Low-1.42s, drifting back toward year-to-date highs (24hr range 1.4203 to 1.4239)

USD/CAD opens the week in the low-1.42s, drifting back toward its year-to-date highs after a quiet weekend. The pair has now recovered the ground it lost after last Thursday's soft US payrolls report. The calendar builds toward Wednesday's June FOMC minutes and Friday's Canadian employment report, with the Bank of Canada's Business Outlook Survey due this morning.

Market Overview:

Risk appetite is supported this morning. Equities are trading higher as investors buy the dip in semiconductor stocks and bet that the AI investment cycle still has room to run, according to CIBC. Global bond yields are marginally lower and the US dollar is slightly stronger against the G10, though moves remain muted. CIBC strategists continue to look for Canadian dollar outperformance, expecting USD/CAD to sell off toward 1.4130 over the coming week and keeping a 1.3700 year-end target on the view that US exceptionalism may have peaked.

Oil Slides as Saudi Arabia Cuts Prices and OPEC+ Adds Supply:

Energy markets are slightly lower after Saudi Arabia cut its flagship oil price by US$11 per barrel for Asian buyers, its first discount since the 2020 price war, according to CIBC. The move signals growing concern about oversupply as Iranian flows normalize and OPEC+ continues to return barrels to the market. Bloomberg reports that seven OPEC+ members agreed over the weekend to raise output by a further 188,000 barrels per day from August, the fifth consecutive monthly increase. CIBC notes that WTI has fully given back its Iran war premium and that it is hard to call a bottom with supply still building. Softer crude weighs on Canada's terms of trade and remains a structural headwind for the Canadian dollar.

Canadian Data/Outlook:

The Bank of Canada's second-quarter Business Outlook Survey is released this morning at 7:30am Pacific and will offer a read on business sentiment through the USMCA trade negotiations. The main event is Friday's June employment report. CIBC expects a modest beat at +20k versus the +10k consensus, but cautions that census hiring and World Cup-related activity may flatter the headline. Markets will likely focus on the composition of the gains; if job growth is concentrated in public administration and hospitality, any Canadian dollar lift could prove short-lived. The Bank of Canada meets July 15 and markets price no change in either direction, leaving the policy rate at 2.25%, per CIBC's Central Bank Watch.

Fed Watch:

With no major US releases beyond this morning's ISM services survey, attention shifts to Wednesday's June FOMC minutes. CIBC expects a broadly unchanged message, with officials still viewing inflation as too sticky to signal near-term easing. A hawkish read could support the US dollar, although CIBC argues much of that risk is already reflected in current pricing. Following last Thursday's payrolls miss of 57,000 versus a consensus near 113,000, markets pared tightening bets. CIBC's Central Bank Watch puts the odds of a 25 basis point hike at the July 29 meeting at 23%, and CME FedWatch pricing sat near 24% as of Friday. No cut is priced.

Technical Picture:

Resistance: 1.4239, today's high, then 1.4248, the 14-month high, with 1.4296 beyond.
Support: 1.4203, today's low, then 1.4150, last week's low; a sustained break exposes 1.4024.
Outlook: The pair has fully recovered its post-payrolls dip and trades within reach of the 1.4248 cycle high. Near-term momentum favours the topside, but CIBC's fair-value work continues to flag the pair as stretched, and its strategists look for a pullback toward 1.4130 this week. A break above 1.4248 would mark fresh 14-month highs and open room toward 1.4296.

Week Ahead:

Wednesday's FOMC minutes and Friday's Canadian jobs report are the two focal points for USD/CAD this week. Next week follows quickly with US CPI on Tuesday and the Bank of Canada decision on Wednesday, so positioning into Friday's data will set the tone for both.

Other Notes:

• The Reserve Bank of New Zealand is expected to raise its cash rate 25 basis points to 2.50% on Tuesday evening Pacific time, one of the few central banks moving this week.
• Global bond yields are marginally lower to start the week with no major moves worth reporting, according to CIBC.