USD/CAD Market Update

Current Level: Low-1.41s (24hr range 1.4097 to 1.4129)

USD/CAD is trading in the low-1.41s this morning near 1.4098, down from Monday's close of 1.4124 after an overnight push to 1.4129 failed to hold. The dominant story of the session sits in equities rather than currencies. A fourth consecutive day of semiconductor weakness has dragged the Nasdaq 100 into correction. Currency markets are largely ignoring it, with tomorrow's Federal Reserve decision keeping most G10 pairs pinned in narrow ranges.

Market Overview:

Risk appetite is deteriorating, but the damage is concentrated. CIBC reports the selloff in global semiconductor stocks dragging the Nasdaq 100 into correction territory, down 10% from its highs, while the Dow Jones and the equal weight S&P 500 trade higher on the day. That split matters for currencies. This is rotation within equities rather than broad de-risking, which is why the US dollar is only mixed against the G10 basket and most pairs are stuck in tight ranges. CIBC reports global bond yields mixed, with investors staying on the sidelines ahead of tomorrow's decision, and energy markets softer as the geopolitical risk premium continues to be priced out.

Semiconductor Selloff Pulls the Nasdaq Into Correction:

The chip complex is in its fourth session of declines. South Korea's Kospi closed down 10.8% at 6,023.66, its weakest close since April, with trading halted more than once on the speed of the move. Samsung Electronics fell 13.4% and SK Hynix fell 14.7%, according to the Korea JoongAng Daily. Japan's Nikkei fell about 4%, and Nasdaq 100 futures pointed roughly 1% lower before the US open, according to Bloomberg and Quartz. The trigger was a report from The Information that China has begun mass production of deep ultraviolet lithography tools, raising the prospect of faster Chinese progress in advanced chip manufacturing. CIBC also points to recent concerns around Chinese model releases and Nvidia's financing commitments as adding fuel to the debate. Semiconductor stocks are tracking their worst month since 2022, immediately after their best quarter on record. CIBC's read is that investors are no longer giving the sector a free pass, and that the question this week is not whether AI spending keeps rising, it is whether the market is still willing to reward it. Microsoft, Meta and SK Hynix report tomorrow, with Apple and Amazon later in the week.

Oil Extends the Unwind:

Energy markets are softer for a second session. Brent traded near US$87 per barrel and West Texas Intermediate near US$82 early today, according to Vantage Markets, after both benchmarks fell more than 7% on Monday when the United States paused strikes on Iran and Tehran said it had halted retaliatory action. Brent had approached US$100 and WTI had traded above US$92 in late July. CIBC describes the move as the geopolitical risk premium continuing to be priced out of the market. The physical picture has not normalised, with Strait of Hormuz traffic still heavily disrupted, so the risk of a snapback has not gone away. For USD/CAD the effect is familiar. Weaker crude removes the support that carried the Canadian dollar through the middle of last week, and CIBC notes that softer oil is providing some support to the pair even as broader US dollar gains have stalled.

Canadian Data/Outlook:

The domestic calendar is empty today, and CIBC notes there are no major releases in either Canada or the United States ahead of tomorrow's decision. Friday's May GDP report is the only meaningful domestic release this week, with consensus at 0.2% month over month against 0.5% prior. CIBC strategists continue to look for USD/CAD to trend lower over time, and they specifically flag a Federal Reserve hold tomorrow as the condition that would help deliver it. On the domestic policy side there is very little priced. CIBC's central bank watch shows a 6% implied probability of a 25 basis point hike at the September 2 Bank of Canada meeting, unchanged from Monday, with no cut priced. The Bank has held its policy rate at 2.25% at each of its last six announcements, most recently on July 15.

Fed Watch:

The Federal Reserve announces tomorrow at 11:00 a.m. Pacific, with the press conference at 11:30 a.m. Consensus is for a hold at 3.75%, but this is a live meeting rather than a formality. CIBC's central bank watch shows a 31% implied probability of a 25 basis point hike, easing from 34% on Monday, with no cut priced. CME FedWatch data as of July 27 put the probability of no change at 65.7%, leaving roughly 34% assigned to a quarter point increase and effectively nothing priced for a larger move. That is a sharp repricing from hike odds of 10.7% on July 15, driven by the energy-led inflation impulse of the past two weeks. With crude now retracing, the balance of risk around the statement has shifted. Markets expect officials to look through a commodity-led price surge, and the tone of the press conference is likely to matter more for September pricing than the decision itself.

Technical Picture:

Resistance: 1.4129, this morning's high and the highest level of the past five sessions, caps the near term after the move stalled there. Above that, 1.4155, the July 14 high, remains the upper bound of the month's range.
Support: 1.4097, the session low, sits immediately below spot, ahead of 1.4070, Monday's low, and the 1.4000 psychological level, which CIBC has flagged as having flipped from resistance into support.
Outlook: The pair cleared the 1.4116 range top on Monday and extended to 1.4129 this morning, but the break has not held and price is back in the middle of the low-1.41s. Two failed attempts at the topside keep July's 1.4000 to 1.4155 range intact. Tomorrow's Federal Reserve decision is the most likely catalyst for a resolution, with a hold favouring the downside on CIBC's view and a hike opening 1.4155. Hedgers with near-term US dollar needs are still being offered levels at the top of the month's range.

Week Ahead:

The Federal Reserve tomorrow is the single most important event in the window, and with a third of the market positioned for a hike the reaction risk is larger than a typical decision. Thursday then pairs the Bank of England and Bank of Japan decisions with US advance GDP and June core PCE inside a few hours. Canadian May GDP closes out the month on Friday. Mega-cap earnings run alongside all of it, and given how the equity tape is behaving they may move risk sentiment more than the data does.

Other Notes:

• The equity selloff is narrower than the headline number suggests. CIBC notes the Dow Jones and the equal weight S&P 500 are higher on the day despite the severity of the weakness in semiconductors, a rotation that helps explain why G10 currency ranges have stayed so tight.
• SK Hynix reports tomorrow alongside Microsoft and Meta. Its US listed shares closed at US$143, below the US$149 IPO price, according to the Korea JoongAng Daily, an indication of how quickly sentiment toward the memory complex has turned.