USD/CAD Market Update

Current Level: High-1.40s (24hr range 1.4081 to 1.4108)

USD/CAD is trading in the high-1.40s this morning near 1.4088, little changed from Tuesday's close of 1.4106 and consolidating just below this month's highs. It is a quiet news day in North America, with little on the economic calendar and the Federal Reserve in its pre-meeting blackout. The session's focus is on Alphabet's earnings after the close, the next major test for the AI trade, while crude holds at multi-week highs as US and Iran strikes reach an eleventh consecutive day.

Market Overview:

Risk appetite is a touch softer this morning. CIBC reports equities modestly lower as Monday's semiconductor rally pauses ahead of a key round of technology earnings. Global bond yields are higher, as rising oil prices keep inflation concerns alive and reduce the urgency for near-term Fed easing. The US dollar is mixed across the G10 basket, struggling to find a bid despite ongoing tariff headlines, higher oil and geopolitical tensions. The European Central Bank decision tomorrow is the nearest event risk, with the Fed a week away.

Alphabet and the AI Trade:

Alphabet reports after the close today, and investors are focused less on the earnings themselves than on AI capital spending commentary. CIBC frames the release as the test that should set the tone for the rest of the month: strong AI capex guidance would support the semiconductor space, while signs of slowing spending could trigger a larger move lower. Investors continue to juggle two competing risks, overbuild and overspend concerns at the hyperscalers on one side, and broader growth fears should companies begin pulling back spending on the other. CIBC also highlights Citi's panic and euphoria model, which sits firmly in euphoric territory and suggests positioning and sentiment remain stretched despite the volatility of the past two weeks.

Energy and the Middle East:

Energy markets remain supported as US and Iranian forces exchanged strikes for an eleventh consecutive day, with both sides widening military actions and showing little sign of diplomacy. WTI is trading above US$88 per barrel and Brent briefly topped US$95, amid concerns that disruptions to Red Sea and Strait of Hormuz shipping lanes could intensify. CIBC's view is that the market remains more focused on oil than on the conflict itself; as long as key shipping routes stay under threat, the risk for energy prices is higher, not lower. For USD/CAD, the crude bid is the main offset to soft risk sentiment, and it helps explain why the pair is holding steady rather than extending Monday's tariff-driven bounce.

Canadian Data/Outlook:

The domestic calendar is empty today. Monday's US tariff announcement remains the backdrop for the Canadian dollar: the Section 338 measures against a range of Canadian goods are scheduled to take effect August 19, and markets continue to treat them as a negotiating tactic rather than a durable economic threat. CIBC strategists have not changed their view and remain bullish on the Canadian dollar, looking for USD/CAD to drift back toward 1.4000 and below on the argument that the US dollar already reflects all of its good news. CIBC's central bank watch shows a 7% implied probability of a 25 basis point hike at the September 9 Bank of Canada meeting and no chance of a cut. May retail sales on Friday are the next domestic release, followed by May GDP on July 31.

Fed Watch:

The Federal Reserve is in its blackout period ahead of the July 29 decision, so there is no official commentary to parse. Pricing has drifted hawkish at the margin: CIBC's central bank watch now shows a 26% implied probability of a 25 basis point hike at that meeting, up from 19% a week ago, with no cut priced. CME FedWatch data as of July 21 put the probability of no change near 83%, with the remainder assigned to a quarter point hike. Rising oil prices are doing the work here, keeping inflation concerns alive and reducing the urgency for any near-term easing. With the data calendar thin until the meeting, the earnings tape and energy prices are likely to drive rate expectations more than releases.

Technical Picture:

Resistance: 1.4108 to 1.4112, the session high and Tuesday's top, cap the near term; beyond that, 1.4155, the July 14 high, marks the upper end of the month's range.
Support: 1.4081, the session low, sits first, ahead of 1.4054, Tuesday's low, and the 1.4000 psychological level.
Outlook: The pair is consolidating just below the month's highs after the tariff-driven bounce, with July's price action contained between the 1.4000 area and the mid-July highs. Direction from here likely hinges on tonight's earnings reaction and the oil tape rather than domestic catalysts.

Week Ahead:

Central banks dominate the window. The ECB decision tomorrow is expected to be uneventful, the Fed follows next Wednesday, and next Thursday brings the Bank of England and the Bank of Japan within hours of US advance GDP and core PCE. Canadian May GDP closes out the month on July 31.

Other Notes:

• The Japanese yen fell through 163 per dollar, its weakest level since 1986, as wide rate differentials with the United States continue to weigh on the currency. The Bank of Japan meets July 30, and market reporting suggests growing debate about the pace of policy normalisation.
• UK inflation slowed to 2.6% year over year in June from 2.8%, a 15-month low that came in below the 2.7% consensus, easing pressure on the Bank of England ahead of its July 30 meeting.