USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4011 to 1.4054)

USD/CAD is trading in the low-1.40s this morning, extending a week-long decline that has carried the pair from above 1.4150 to fresh monthly lows near the 1.40 handle. Soft US inflation data and Wednesday's steady Bank of Canada decision have kept the US dollar on the back foot, while a sharp rotation out of AI and semiconductor names has left global risk sentiment fragile.

Market Overview:

Risk appetite is defensive to start the session, with equities opening lower as investors pull capital out of crowded technology positions. The US dollar is mixed against the G10, holding near monthly lows after this week's softer CPI and PPI prints. Global bond yields are modestly higher with no standout moves. Energy prices are firmer on renewed US and Iran tensions, a cross-current that lends some support to the commodity-linked Canadian dollar even as broader risk sentiment stays cautious.

AI and Technology Rotation:

The rotation out of AI-related names accelerated overnight, dragging the broad semiconductor complex lower. Taiwan Semiconductor reported record second-quarter revenue of $39.62 billion, up 36% from a year ago with AI chips accounting for 61% of sales, yet its shares still fell alongside the sector as the selloff overwhelmed the earnings beat. The move reflects growing scrutiny of AI capital spending, amplified by reports that Meta plans to resell surplus compute capacity and by rising memory costs pressuring hardware margins. Bank of America notes that global fund manager cash levels have fallen to a record low near 3.6% of assets, leaving less sidelined money to cushion a pullback. Capital is rotating toward industrials, financials, and defensive sectors.

US Data and the Consumer:

Headline retail sales rose 0.2% in June, just below the 0.3% consensus and down from May's upwardly revised 1.0% pace. The details were firmer than the headline suggests: sales excluding gasoline rose 0.7% and the control group, which feeds directly into GDP, gained 0.5%, with strength in online retail and auto dealers. Lower gasoline prices held down the headline figure. Initial jobless claims fell to 208,000 for the week ending July 11, down 8,000 and better than expected, keeping the four-week average near 211,000. The data points to a still-resilient consumer and labour market, though the softer CPI and PPI prints earlier in the week remain the dominant driver of the weaker US dollar.

Canadian Data/Outlook:

The Bank of Canada left its overnight rate unchanged at 2.25% on Wednesday, the sixth consecutive hold, in a decision that matched expectations and drew only a muted market reaction. The accompanying statement signalled that policymakers are in no rush to change course. The Bank trimmed its 2026 growth forecast to 0.7% from 1.2% and lifted its 2026 inflation projection to 2.5% from 2.3%. CIBC strategists maintain a bearish USD/CAD bias, arguing that the fundamental gap between the US and Canada is narrowing. Firmer oil prices are an additional tailwind for the Canadian dollar. Domestic CPI on July 20 is the next major test.

Fed Watch:

Markets expect the Federal Reserve to hold rates at its July 28 to 29 meeting. This week's softer CPI and PPI readings have reinforced the view that inflation pressures are easing, keeping the dollar near monthly lows. Rate futures price no cut at the July meeting and roughly a 13% chance of a hike, according to CIBC's central bank watch. The updated growth and inflation picture, along with next week's data, will shape expectations heading into the decision.

Technical Picture:

Resistance: 1.4054 caps the near term, the session high, followed by 1.4078, Wednesday's high, and the 1.4100 round number.
Support: The 1.4000 psychological level sits just below spot, ahead of the key cluster at 1.3981, a Fibonacci retracement, and 1.3970, the 50-day moving average. A sustained break there opens 1.3750.
Outlook: The trend remains lower after a steady week-long grind from above 1.4150. The 1.3981 to 1.3970 zone is the pivotal support; holding it keeps the pair rangebound near 1.40, while a decisive break would extend the move toward 1.3750. A recovery back above 1.4078 would ease the immediate downside pressure.

Week Ahead:

The domestic highlight is Canadian CPI on July 20, which will shape the Bank of Canada's path after this week's hold. The ECB decision on July 23 and the Federal Reserve meeting on July 28 to 29 round out a busy stretch for central banks.

Other Notes:

• Oil is firmer, with West Texas Intermediate near $79.34 and Brent near $84.73, as US and Iran tensions disrupt shipping through the Strait of Hormuz. Tanker traffic through the strait has fallen sharply over the past week, supporting prices and, at the margin, the Canadian dollar.
• Global bond yields are modestly higher with no major moves; the softer US inflation backdrop continues to anchor front-end rate expectations.