USD/CAD Market Update

Current Level: Low-1.41s (24hr range 1.4066 to 1.4115)

USD/CAD is trading in the low-1.41s this morning near 1.4099, up from Thursday's close of 1.4086 and at the top of this week's range. The main overnight development is the formal start of US Section 301 tariffs on roughly 60 economies, an announcement markets had long anticipated and have largely looked past. A pullback in oil prices is the more important driver for the Canadian dollar, softening the crude support that helped it outperform earlier in the week.

Market Overview:

Risk appetite is mixed heading into the weekend. CIBC reports that the retreat in oil prices is offering equity markets some relief, while concern over AI capital spending lingers into next week's Federal Reserve decision and a heavy round of mega-cap earnings. Global bond yields are slightly lower as investors weigh geopolitical risks against the inflation impulse from energy. The US dollar is stronger against most of the G10 basket and trading toward monthly highs ahead of Wednesday's decision.

Section 301 Tariffs Take Effect:

The Section 301 tariffs announced by the US Trade Representative took effect at 12:01 a.m. overnight, applying new duties to imports from roughly 60 economies and replacing the temporary Section 122 tariffs that expired at midnight. Most countries face rates in the 10% to 12.5% range. Canada and Mexico were each assigned a 10% rate, but goods that comply with the USMCA remain exempt, which leaves North American trade flows largely unchanged in practice, as reported by CIBC and Global Trade Alert. The measures are separate from the Section 338 proclamations announced Monday, which target specific Canadian goods at 50% and are scheduled to take effect August 19. CIBC notes the bigger forward-looking risk is the pending excess-capacity investigation, which could layer another round of tariffs on top of the current regime. Market reaction has been muted; the action was widely expected and changes little for USMCA-compliant exporters.

Oil Slips Back Below US$100:

Energy markets are pulling back this morning after five consecutive sessions of gains. Brent crude traded near US$97 per barrel early today after briefly breaking above US$100 on Thursday, according to Fortune, while West Texas Intermediate held near US$90. The retreat gives equity markets some breathing room, but the geopolitical backdrop is unchanged, with Red Sea and Strait of Hormuz shipping still under threat. For USD/CAD, softer crude cuts the other way: the oil bid that helped the Canadian dollar outperform through the middle of the week has faded, and the pair has pushed to weekly highs as a result.

AI Spending and the Nasdaq:

US equities fell again on Thursday, with technology leading the losses after Alphabet's raised capital spending guidance overshadowed an otherwise strong quarter; the stock closed down 7%. CIBC notes the Nasdaq is testing a support level that has held since April and has now been defended three times, with each test looking weaker than the last. Stock futures point to a steadier open this morning as oil retreats, according to TheStreet. The next test comes quickly: Microsoft, Meta and Apple all report next week, alongside the Federal Reserve decision, and CIBC views that combination as the likeliest catalyst for a decisive move in either direction. The debate itself is unchanged; demand for AI capacity is not in question, but whether the capital spending eventually produces enough cash flow to justify it is.

Canadian Data/Outlook:

The domestic calendar is empty today. Yesterday's retail sales report remains the freshest domestic input: May sales rose 1.0% to $73.7 billion, with volumes up 0.3% after adjusting for prices, pointing to modest real growth. CIBC strategists remain constructive on the Canadian dollar and continue to look for USD/CAD to move back toward 1.4000 over time, though they caution that softer oil prices, geopolitical uncertainty and defensive risk sentiment may keep the pair supported into next week's Federal Reserve decision. CIBC's central bank watch shows a 13% implied probability of a 25 basis point hike at the September 9 Bank of Canada meeting, with no cut priced. May GDP next Friday, July 31, is the next major domestic release, with consensus at 0.2% month over month against 0.5% prior.

Fed Watch:

The Federal Reserve remains in its blackout period ahead of Wednesday's decision. CIBC's central bank watch shows a 34% implied probability of a 25 basis point hike at the July 29 meeting, easing slightly from 36% on Thursday but still well above the 19% quoted a week ago, with no cut priced. CME FedWatch data as of July 23 tells the same story, putting the probability of no change at 63.5% and assigning the remainder to a quarter point hike, up from hike odds near 11% on July 15. A hold remains the base case, but pricing leaves more uncertainty around this meeting than any since the spring, and the oil tape between now and Wednesday remains the most likely swing factor.

Technical Picture:

Resistance: 1.4115, the session high and this week's top, caps the near term, followed by 1.4155, the July 14 high and the upper bound of July's range.
Support: 1.4066, the session low, sits first, ahead of the 1.4000 psychological level, which CIBC notes has flipped from resistance into support, and the pivotal cluster at 1.3981, a Fibonacci retracement, and 1.3970, the 50-day moving average.
Outlook: The pair enters the weekend at the top of its weekly range but still inside the 1.4000 to 1.4155 band that has contained July. Softer oil is supporting the topside near term, while CIBC's medium-term view continues to favour USD/CAD downside toward 1.4000. Wednesday's Federal Reserve decision is the clearest catalyst for a break of the range in either direction.

Week Ahead:

The Federal Reserve decision on Wednesday dominates the window, and with markets assigning roughly a one in three chance of a hike the statement and press conference are a live event rather than a formality. Thursday 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 Friday and matters more than usual with core inflation running below 2%.

Other Notes:

• The Japanese yen is trading near 163 per US dollar, close to a four-decade low, and speculation about official intervention is building ahead of the July 30 Bank of Japan meeting. Japan's finance minister repeated that the government is ready to act on excessive moves, while Citi sees near-term risk of USD/JPY reaching 165, as reported by FXStreet and Investing.com.
• Gold is trading near US$4,028 per ounce, holding above the US$4,000 level as safe-haven demand offsets the drag from higher real yields, with the 10-year Treasury yield near 4.70%, according to FX Leaders. CIBC notes the trading range is narrowing and expects the eventual break to be directional.