USD/CAD Market Update

Current Level: High-1.40s (24hr range 1.4057 to 1.4091)

USD/CAD is trading in the high-1.40s this morning near 1.4080, little changed from Wednesday's close of 1.4086. The Canadian dollar is outperforming the rest of the G10 against a firmer US dollar, supported by surging oil prices and a stronger May retail sales report released this morning. The broader tone is risk-off, with equities lower after Alphabet raised its capital spending guidance and crude extended its rally.

Market Overview:

Risk appetite is weaker this morning. CIBC reports higher oil prices, rising bond yields and renewed concern over technology capital spending outweighing an otherwise light data calendar. Equities are lower with technology shares leading the decline. Global bond yields are higher as the oil move strengthens the case for tighter policy, and Germany's 10-year yield briefly touched its highest level since 2011. The US dollar is stronger against most of the G10 basket, with the Canadian dollar the notable exception as oil prices climb.

Oil Tops US$100 as Red Sea Attacks Widen:

Yemen's Houthi militants claimed attacks on two Saudi oil tankers in the Red Sea, extending the shipping disruption beyond the Strait of Hormuz. Brent crude rose above US$100 per barrel for the first time since late May, up more than 6% on the session, while West Texas Intermediate crossed US$90 for the first time since June 11 and traded near US$91, according to Reuters and CNBC. Crude has now risen for five consecutive sessions. Goldman Sachs sees Brent reaching more than US$120 per barrel by the fourth quarter if supply disruptions continue. CIBC's view is that oil is becoming important for monetary policy again; the higher crude goes, the harder it becomes for central banks to ignore.

ECB Holds as Energy Clouds the Outlook:

The European Central Bank left policy rates unchanged this morning, as expected, with the main refinancing rate at 2.40%. Policymakers warned that risks to inflation remain to the upside, pointing to higher energy prices, but stopped short of signaling another hike. CIBC describes the ECB as in wait and see mode, with markets now firmly focused on the September meeting as the next live decision.

AI Spending Under Scrutiny:

Alphabet reported second-quarter results that beat expectations on revenue, earnings and cloud growth, but the stock is falling sharply after the company raised its 2026 capital expenditure guidance from US$190 billion to US$205 billion, a level that produced its first negative free cash flow quarter since going public. CIBC frames the reaction as a question about cost rather than demand: the AI buildout is easy to see in the spending, while the payoff remains harder to measure. Tesla is down roughly 12% after a disappointing quarter, adding to the pressure on the technology complex.

Canadian Data/Outlook:

Statistics Canada reported May retail sales up 1.0% to $73.7 billion this morning, with gasoline stations and fuel vendors posting the largest increase on higher prices. Sales volumes rose 0.3% after adjusting for prices, pointing to modest real growth. The report, alongside the oil rally, is helping the Canadian dollar outperform today. CIBC strategists remain bullish on the Canadian dollar and continue to look for USD/CAD to drift back toward 1.4000 and below, though they note timing may be slightly delayed while risk-off sentiment supports the US dollar. CIBC's central bank watch shows a 14% implied probability of a 25 basis point hike at the September 9 Bank of Canada meeting, up from 7% yesterday, with no cut priced. May GDP on July 31 is the next major domestic release.

Fed Watch:

The Federal Reserve remains in its blackout period ahead of the July 29 decision. Pricing has shifted notably hawkish on the oil move: CIBC's central bank watch now shows a 36% implied probability of a 25 basis point hike at that meeting, up from 26% yesterday and 19% a week ago, with no cut priced. The most recent CME FedWatch reading, published July 21 before the latest leg higher in crude, put the probability of no change near 83%. A hold remains the base case, but the meeting is livelier than it looked a week ago, and the oil tape between now and Wednesday is likely to matter more than the thin data calendar.

Technical Picture:

Resistance: 1.4091, the session high, caps the near term, followed by 1.4113, Wednesday's high and the top of this week's range, and 1.4155, the July 14 high.
Support: 1.4057, the session low, sits first, ahead of the 1.4000 psychological level and the pivotal cluster at 1.3981, a Fibonacci retracement, and 1.3970, the 50-day moving average.
Outlook: The pair continues to consolidate below the month's highs, with oil-driven Canadian dollar demand capping the topside while broad US dollar strength limits the downside. July's range between the 1.4000 area and the mid-month highs remains intact; the Fed decision and the oil tape are the likeliest catalysts for a break.

Week Ahead:

The Federal Reserve decision dominates the window, and with hike probabilities no longer negligible the statement and press conference carry genuine two-way risk. July 30 is the heaviest day of the period, pairing the Bank of England and Bank of Japan decisions with US advance GDP and core PCE. Canadian May GDP closes out the month on July 31.

Other Notes:

• The Japanese yen is trading near 163 per US dollar, its weakest level since December 1986, as reported by CNBC. The Bank of Japan is widely expected to hold at its July 30 meeting after raising its policy rate to 1% in June, and Japan's finance ministry has repeated warnings about possible intervention.
• Germany's 10-year yield briefly touched its highest level since 2011 as bond markets price the inflationary impact of higher oil, per CIBC.