USD/CAD Market Update

Current Level: Mid-1.41s, pulling back as the Canadian dollar outperforms (24hr range 1.4155 to 1.4209)

USD/CAD trades in the mid-1.41s this morning, down from the 1.4205 open, as a sharp rally in oil supports the Canadian dollar despite a broadly firmer US dollar. The move follows the collapse of the US-Iran ceasefire, which has pushed crude higher and equities lower in a classic risk-off session. This afternoon's June FOMC minutes are the main scheduled event, with Friday's Canadian employment report the next domestic test.

Market Overview:

Risk appetite is fragile. Equities opened lower with tech leading the decline, volatility is sharply higher, and global bond yields have risen. The US dollar is supported against the G10 basket, but CIBC notes that commodity currencies, including the Canadian dollar, the New Zealand dollar and the Australian dollar, are outperforming on the energy bid. That combination explains today's price action: broad US dollar strength, yet a lower USD/CAD. CIBC strategists continue to favour lower levels in the pair in both the near and long term, with their 1.3700 year-end target unchanged.

Ceasefire Collapse Sends Oil Sharply Higher:

President Trump declared the US-Iran ceasefire over following a fresh round of US airstrikes on more than 80 Iranian targets and the revocation of the waiver that had allowed Iranian oil exports, according to CIBC. He added that the US will probably strike Iran again. Oil prices are up about 5% on the day, with WTI back above US$74 per barrel on renewed supply-disruption concerns. CIBC's view is that continued escalation points to higher oil, weaker equities and a firmer US dollar, but it also notes that investors have spent much of this year fading geopolitical headlines and have largely been right to do so. Whether this episode breaks that pattern is the open question for the week.

Hawkish Repricing Gathers Pace:

The oil shock is feeding directly into rate expectations. Global bond yields are higher, led by New Zealand after the Reserve Bank of New Zealand raised its cash rate 25 basis points and signalled further increases are likely, saying inflation remains above target, according to CIBC. In the US, fed funds futures continue to price roughly one 25 basis point hike by late 2026, per CME Group pricing. The New York Fed's June Survey of Consumer Expectations showed households expect 3.67% inflation over the next year, the highest reading since September 2023. If oil holds these levels, that repricing has room to extend.

Canadian Data/Outlook:

Canada's merchandise trade surplus widened to $4.2 billion in May from $3.4 billion in April, the largest since May 2022, according to Statistics Canada. Exports rose 0.9% to a record $77.1 billion, a fourth consecutive monthly increase, led by shipments to the United States, while imports edged down 0.2%. Elevated commodity prices are flattering the numbers, but the trend is supportive for the Canadian dollar at the margin. The main domestic event is Friday's June employment report, where consensus looks for a gain of about 10,000 jobs after May's 87,800 increase, with the unemployment rate seen holding at 6.6%; CIBC has previously flagged upside risk to the consensus. The Bank of Canada meets July 15 and markets price no change in either direction at 2.25%, with CIBC's Central Bank Watch showing 0% odds of both a hike and a cut.

Fed Watch:

The June FOMC minutes are released at 11:00am Pacific today. The meeting predates this week's escalation, so the minutes will not capture the new oil shock, but they will be read for how officials weigh renewed inflation risk against a cooling labour market. CIBC's Central Bank Watch now shows a 30% probability of a 25 basis point hike at the July 29 meeting, up from 23% yesterday and 19% at the start of the month, with no cut priced. CME FedWatch pricing implied roughly a 27% hike probability as of Tuesday. Rising consumer inflation expectations, per the New York Fed survey noted above, reinforce the hawkish tilt in the pricing.

Technical Picture:

Resistance: 1.4209, today's high, then 1.4240 and the 1.4248 year-to-date high beyond.
Support: 1.4155, today's low, then 1.4130, the level CIBC has flagged for this week; a sustained break exposes 1.4024.
Outlook: The pair is fading from its highs for a second session and CIBC's daily MACD remains bearish after Monday's flip, the first since April. Oil strength is doing the work for the Canadian dollar even with the US dollar broadly firm. A hold below 1.4200 keeps the near-term pressure pointed lower toward 1.4130.

Week Ahead:

Today's FOMC minutes and Friday's Canadian jobs report are the near-term catalysts, with US CPI and the Bank of Canada decision stacked early next week. With the Middle East escalation now driving oil and rate pricing, headline risk can override the calendar at any point this week.

Other Notes:

• Goldman Sachs research cited by CIBC shows the S&P 500 put/call skew at a record low of 0.71, meaning investors are buying fewer downside hedges than ever despite historically cheap protection; positioning leaves equities vulnerable if sentiment turns further.
• WTI above US$74 per barrel is the key cross-asset level for the Canadian dollar; a reversal of the war premium, as seen after prior episodes this year, would remove today's main source of Canadian dollar support.