USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4004 to 1.4068)

USD/CAD is trading just above the 1.4000 mark this morning near 1.4006, down from Wednesday's close of 1.4036 and at the bottom of the range that has contained the pair since mid-July. Wednesday's Federal Reserve hold gave way to a broad US dollar selloff during the press conference, and this morning's second quarter GDP miss and soft June inflation data have extended the move. The overnight low of 1.4004 sits directly on the 1.4000 level that CIBC has flagged as the key downside pivot.

Market Overview:

Risk appetite is improving this morning. CIBC reports dip buyers emerging across the AI complex after this week's semiconductor flush, with Microsoft's strong earnings helping to stabilize sentiment. Global bond yields are mixed, but the long end remains the focus: the US 30 year Treasury yield touched 5.30%, its highest since 2007, and CIBC notes investors are questioning whether the Fed is moving aggressively enough given inflation has held above target for years. The US dollar is weaker against the G10 basket, with the yen surging on intervention speculation. Oil is slightly lower despite fresh escalation in the Middle East, leaving the Canadian dollar to take its cue from the US rate story rather than from crude.

The Fed Holds, the Market Hears Patience:

The Federal Reserve left its policy rate unchanged at 3.75% on Wednesday, a fifth consecutive hold, on a 9 to 3 vote. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan each dissented in favour of a quarter point hike, the most fractured hawkish dissent since September 2016, according to CNN and Bloomberg. The statement leaned toward tightening, but the press conference did not. Chair Kevin Warsh told reporters the Fed will take the steps needed to return inflation to 2% while declining to signal a path, remarking that he had asked for a good family fight and got one, per CNBC. Markets concluded the committee is unlikely to move quickly. Short end rate expectations eased while long end yields climbed, steepening the curve, and the US dollar sold off broadly into the close. That selloff is the direct driver of this morning's USD/CAD break lower.

US Growth Slows, the Consumer Does Not:

Second quarter GDP rose at an annualised 1.5%, below the 2.0% consensus, but CIBC notes the details were considerably better than the headline. Consumer spending jumped 3.2% against expectations near 2.3%, business investment was strong on continued AI related spending, and the weakness was concentrated in trade and inventory effects. June inflation data reinforced the cooling picture: headline PCE prices fell 0.1% on the month while core PCE rose just 0.1%, below the 0.2% consensus. CIBC's read is that the economy is slowing gently rather than breaking, a combination that has supported equities while extending the post Fed US dollar selloff.

Bank of England, Hawkish Vote, Dovish Message:

The Bank of England held its base rate at 3.75% this morning, as expected. The 6 to 3 vote was more hawkish than the 7 to 2 consensus, with Megan Greene, Catherine Mann and Huw Pill dissenting in favour of a hike, per CIBC. Governor Bailey's comments leaned the other way, noting tentative evidence that inflation persistence may be weaker than previously feared, and several members flagged that softer domestic conditions could limit the pass through from higher energy prices into broader inflation. CIBC strategists believe the BoE stays on hold for the remainder of the year, which should leave sterling lagging in a broader US dollar decline. The pattern matches Wednesday's Fed meeting: hawkish votes on the committee, a leadership message that markets read as patient.

Canadian Data/Outlook:

The domestic calendar is empty today. Friday's May GDP report is the only meaningful Canadian 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 4% implied probability of a 25 basis point hike at the September 2 Bank of Canada meeting, down from 10% yesterday, with no cut priced; the post Fed easing in rate expectations and the pullback in crude are both showing up in domestic pricing. The Bank has held its policy rate at 2.25% at each of its last six announcements. CIBC strategists continue to favour USD/CAD downside, looking for a move toward the 1.3900 area over the coming months, and the post Fed break is the first meaningful step in that direction.

Fed Watch:

The next decision lands September 16. CIBC's central bank watch shows a 55% implied probability of a 25 basis point hike at that meeting, with no cut priced. That figure captures a volatile 24 hours: Forbes reported fed funds futures pricing September hike odds above 80% immediately after Wednesday's statement, up from below 53% a week earlier, before the press conference pulled expectations back down. The gap between a statement that leaned hawkish and a chair who declined to commit to acting leaves pricing unusually sensitive to Fed commentary in the days ahead. Next Friday's July employment report is the first major data test, and September pricing is likely to swing on it.

Technical Picture:

Resistance: 1.4068, this morning's session high, sits just below the old range floor at 1.4070; above that, 1.4111, Wednesday's pre decision high, marks the top of the recent pullback zone.
Support: 1.4000, the psychological level CIBC has flagged as having flipped from resistance into support, with the overnight low of 1.4004 sitting directly on it; below, 1.3981, a Fibonacci retracement level, ahead of the 1.3900 area CIBC targets.
Outlook: The two week consolidation between roughly 1.4070 and 1.4155 has resolved lower. The pair closed below the old floor on Wednesday and has now tested 1.4000 in the overnight session. A daily close below 1.4000 would open 1.3981 and put the 1.3900 objective in play. Failure to break, particularly if Fed officials push back on the market's patient read in the days ahead, argues for a rebound toward 1.4070. Importers with near term US dollar needs are looking at the lower end of the July range.

Week Ahead:

Tonight's Bank of Japan decision and tomorrow's Canadian GDP close out the week. Attention then shifts to next Friday, when Canadian employment and US nonfarm payrolls land together; with September pricing unsettled in both Canada and the United States, the twin jobs reports are the clearest catalyst on the calendar. The September 2 Bank of Canada and September 16 Fed meetings fall outside the two week window but frame everything in between.

Other Notes:

• Oil is consolidating after Wednesday's surge. Brent is near US$89 per barrel and WTI near US$83, both down roughly 2% on the day even after the US launched a heavy wave of strikes against targets in Iran late Wednesday, according to CNBC and Bloomberg. Wednesday's gain of nearly 8% in Brent had followed President Trump's pledge to retaliate for Iran's missile attack on US forces in Jordan.
• The yen is the standout G10 mover, surging on speculation that Japanese authorities have stepped back into the market, per CIBC, hours ahead of tonight's Bank of Japan decision. No intervention has been confirmed.