USD/CAD Market Update

Current Level: High-1.40s (24hr range 1.4085 to 1.4110)

USD/CAD is trading in the high-1.40s this morning near 1.4086, down from Tuesday's close of 1.4107 and drifting lower into today's Federal Reserve decision at 11:00 a.m. Pacific. The overnight session delivered two competing stories: a resumption of hostilities between the United States and Iran that sent crude sharply higher, and a deepening technology selloff centred on South Korea. Neither has moved the pair much, with most G10 currencies pinned in tight ranges until the Fed speaks.

Market Overview:

Risk appetite is fragile this morning. CIBC reports the selloff in technology stocks deepening ahead of today's decision and a critical round of mega-cap earnings, while global bond yields are slightly higher as traders place their final positions. The US dollar is mixed against the G10 basket, with most pairs stuck in tight ranges. Energy is the exception to the pre-Fed quiet, with crude up sharply after Iran struck at US forces in Jordan overnight. The Canadian dollar has barely responded to the oil move, further evidence that the crude correlation that drove the pair through mid-July has loosened.

Fed Decision Day:

CIBC describes today as the first genuinely live Federal Reserve meeting since December 2024, and its base case is a hold: June payrolls disappointed and core CPI continues to grind lower, which strengthens the argument for waiting another six weeks rather than acting today. CIBC is equally clear that a hold would not end the tightening debate. It would keep the September meeting front and center, which should limit US dollar downside. The detail to watch is the dissent count. CIBC argues that two or three hawkish dissents could prove more important than the rate decision itself, and Forbes reports dissent is widely expected at what is Chair Kevin Warsh's second meeting leading the committee. For USD/CAD, CIBC looks for a hold to encourage a modest move back toward the 50-day moving average at 1.4040, and it does not expect the press conference to deliver the kind of dovish message needed to drive a broader US dollar selloff.

Iran Strikes a US Base in Jordan, Oil Snaps Back:

The pause in hostilities that had held since the weekend ended overnight. Iranian forces launched ballistic missiles at US positions near the Muwaffaq Salti Air Base in Jordan late Tuesday, and the US command said air defence batteries intercepted every missile, with no casualties reported, according to CNBC and Fortune. Crude reversed a large part of Monday's slide in response: Brent gained roughly 6.5% to near US$89.50 per barrel and West Texas Intermediate advanced about 6.3% to just above US$84 after President Trump signalled a forceful US response, per CNBC. Prices remain below last week's highs near US$100. CIBC's read is that as long as the US and Iran situation remains unresolved, every de-escalation headline will be questioned, which argues for a persistent risk premium in energy prices rather than a full retracement.

Korea's Leveraged ETF Unwind Deepens:

South Korea remains the center of the technology selloff. The Kospi fell heavily for a second consecutive session overnight after SK Hynix reported second-quarter results below Wall Street expectations, according to Yahoo Finance, and CIBC notes the index is now testing its 200-day moving average after going from one of the strongest equity markets in the world to one of the weakest in roughly a month. The structure of the decline matters as much as its size. Seoul Economic Daily reported last week that SK Hynix shares fell 17.9% in a single session while the two-times leveraged product tied to the stock lost 47.5%, a gap that shows how these instruments have amplified the selling. CIBC reports that Seoul responded overnight with measures aimed at curbing retail speculation, including limits on leveraged ETFs and tighter controls on retail margin. The next test for the broader AI complex comes after today's close, when Microsoft and Meta report, with Apple and Amazon tomorrow.

Canadian Data/Outlook:

The domestic calendar is empty today, leaving the Canadian dollar to trade the Fed outcome and the oil tape. Friday's May GDP report is the only meaningful domestic release of the week, with consensus at 0.2% month over month against 0.5% prior. On policy, CIBC's central bank watch shows a 10% implied probability of a 25 basis point hike at the September 2 Bank of Canada meeting, up from 6% yesterday, with no cut priced; the overnight oil move is showing up once again in domestic rate expectations. The Bank has held its policy rate at 2.25% at each of its last six announcements. CIBC strategists continue to see a Federal Reserve hold as the trigger for near-term USD/CAD downside toward 1.4040, with a much higher bar for anything beyond that.

Fed Watch:

The decision lands at 11:00 a.m. Pacific, with Chair Warsh's press conference at 11:30 a.m. Consensus is a hold at 3.75%, which would be a fifth consecutive unchanged meeting, per Trading Economics. CIBC's central bank watch shows a 34% implied probability of a 25 basis point hike, up from 31% yesterday, with no cut priced, and roughly 8 basis points of tightening embedded in front-end pricing. CME FedWatch data show traders assigning just over 64% odds to a hold, with essentially all of the remainder on a quarter point increase and nothing priced for a larger move, as reported by CNBC. The repricing that brought the market here, from hike odds of 10.7% on July 15 to nearly 38% at last week's peak, ranks among the fastest for any Fed meeting in recent years. The statement language, the dissent count and the press conference tone will set September pricing, and for USD/CAD they matter more than the decision itself.

Technical Picture:

Resistance: 1.4110, the session high, caps the near term, ahead of 1.4130, Tuesday's high and the top of this week's range, and 1.4155, the July 14 high and the upper bound of the month's range.
Support: 1.4085, the session low, sits immediately below spot, ahead of 1.4040, the 50-day moving average CIBC targets on a Fed hold, and the 1.4000 psychological level, which CIBC has flagged as having flipped from resistance into support.
Outlook: Two failed attempts at the topside earlier this week have left the pair drifting back through the middle of its July range into the decision. The 1.4000 to 1.4155 band that has contained the month should finally resolve on today's outcome. A hold points toward 1.4040 on CIBC's view, while a hike would put 1.4130 and 1.4155 quickly back in play. Expect a wider than normal afternoon range once the statement and press conference land.

Week Ahead:

Today's decision dominates the window, and with roughly a third of the market positioned for a hike the reaction risk is larger than at a typical meeting. Thursday is the heaviest day of the period, pairing the Bank of England and Bank of Japan decisions with US advance GDP and June core PCE inside a few hours. Core PCE is the sequel to today: a hot print would firm up autumn tightening expectations regardless of this afternoon's outcome. Canadian May GDP closes the month on Friday, and next Friday brings employment reports for both the United States and Canada.

Other Notes:

• The Canadian dollar's muted response to the oil move stands out. Crude gained more than 6% overnight and USD/CAD fell only about 20 points, a sign the oil correlation that supported the currency in mid-July has weakened.
• The Bank of Japan decision arrives tomorrow with the yen still trading near multi-decade lows against the US dollar. Traders continue to watch for any signal on the pace of policy normalisation later this year.