USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4013 to 1.4042)

USD/CAD is trading in the low-1.40s this morning, closing out a week that has carried the pair from above 1.4160 to fresh monthly lows near 1.4010. A deepening rotation out of AI and semiconductor names dragged equity markets sharply lower overnight, yet currency markets have absorbed the move with little drama. Firmer crude prices on escalating US and Iran hostilities remain a tailwind for the Canadian dollar.

Market Overview:

Risk appetite is defensive, with equities opening lower as the unwind in AI-related names picks up speed. CIBC notes the US dollar is mixed across the entire G10 basket and that FX markets remain remarkably calm despite the turmoil in equities. Global bond yields are mixed with no major moves worth reporting. Energy prices are higher on renewed US and Iran attacks. It is a slower session for economic data, which leaves the equity tape and positioning in control of price action into the weekend.

AI Rotation Deepens:

The rotation out of AI-related equities accelerated overnight and spread across time zones. The Nasdaq is down roughly 2%, with semiconductors again leading the market lower. CIBC points out that former sector leaders including Micron, SanDisk and Marvell now sit more than 30% below their recent highs, and that momentum stocks are on track for their largest monthly decline since the Global Financial Crisis. Investors are increasingly questioning whether the roughly US$1 trillion of capital spending committed by the hyperscalers can justify current multiples. Sentiment was further dented by Chinese startup Moonshot, which unveiled a model reportedly capable of competing with Anthropic's Claude at a fraction of the cost. Asian markets bore the brunt overnight, with Japan's Nikkei 225 down 4%, China's CSI 300 off 3.6%, and Taiwan's benchmark falling 6.5% after TSMC shares dropped 7.3%. SK Hynix fell more than 11% in Seoul and Samsung Electronics lost over 7%. TSMC's 2026 capital spending guidance of $60 billion to $64 billion reinforced concerns that AI investment may be peaking. CIBC's view is that a sizeable bounce is likely due, and that the real test is what happens after it; a stalled bounce that rolls over would be an early warning of a deeper drawdown.

Energy and the Middle East:

Energy markets are higher as the US and Iran step up attacks, raising fears of a return to full-blown war. Brent is trading near $85.95, up about 2% on the day and on track for a weekly gain of more than 10%, while West Texas Intermediate sits near $79.74. Shipping traffic through the Strait of Hormuz has fallen sharply since the latest escalation, though some vessels continue to transit. Reports indicate the US struck an oil tanker near Iran's main export terminal, and President Trump warned that US forces could target Iranian infrastructure next week absent a diplomatic breakthrough. Iran has launched attacks on US bases in Kuwait and Jordan. For USD/CAD, the crude rally is a direct tailwind for the Canadian dollar and helps explain why the pair sits at monthly lows despite the defensive tone in equities.

Canadian Data/Outlook:

The Bank of Canada left its overnight rate unchanged at 2.25% on Wednesday, the sixth consecutive hold. Attention now turns to June CPI on Monday, July 20, where consensus looks for headline prices to fall 0.2% month on month against a 1.0% gain prior, largely reflecting lower gasoline costs. The core measures the Bank targets are expected to stay restrained, with median CPI last at 2.1% year on year and trimmed CPI at 2.0%. CIBC strategists maintain their bearish USD/CAD bias and are looking for lower levels, with spot drifting toward the 1.3700 to 1.3800 area over the next couple of months. CIBC's central bank watch shows no chance of a cut at the September 9 Bank of Canada meeting and roughly a 10% chance of a hike.

Fed Watch:

Markets expect the Federal Reserve to hold rates at its July 28 to 29 meeting. CIBC's central bank watch prices no chance of a cut and roughly a 12% chance of a hike at that decision. Softer US consumer and producer price data earlier in the week reinforced the view that inflation pressures are easing, and the dollar has held near monthly lows since. With no tier-one US releases today, next week's data and the tone of the equity unwind will shape expectations heading into the decision.

Technical Picture:

Resistance: 1.4042 caps the near term, the session high, followed by 1.4059, Thursday's high, and 1.4078, Wednesday's high.
Support: 1.4013, the session low, sits just under spot, ahead of the 1.4000 psychological level and 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 downtrend is intact. The pair has posted four consecutive lower closes and is on track for a fifth, grinding down from above 1.4160 at the start of the week. The 1.3981 to 1.3970 zone remains the pivotal support and has not yet been tested; holding it keeps the pair anchored near the 1.40 handle, while a decisive break would extend the move toward 1.3750 and into CIBC's 1.3700 to 1.3800 target area. A recovery back above 1.4078 would be the first sign the downside pressure is easing.

Week Ahead:

Canadian CPI on Monday is the domestic highlight and the next test for the Bank of Canada's path after this week's hold, though a soft print is unlikely to shift the rate differentials driving USD/CAD. The ECB on Thursday is widely expected to hold, leaving the statement and press conference as the market-moving element. The Federal Reserve decision on July 28 to 29 closes out the stretch.

Other Notes:

• The Canadian dollar has gained roughly 1% against the US dollar this week, with USD/CAD falling from a close of 1.4164 last Sunday to 1.4017. The move has been a steady grind rather than a single sharp repricing.
• Oil is the standout commodity move, with Brent near $85.95 and West Texas Intermediate near $79.74. Reduced traffic through the Strait of Hormuz remains the key supply risk and, at the margin, a support for the Canadian dollar.
• Global bond yields are mixed with no major moves; the softer US inflation backdrop continues to anchor front-end rate expectations.