USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4004 to 1.4059)

USD/CAD is trading near 1.4053 this morning, up from Thursday's close of 1.4011 after holding above 1.4004 overnight, a second consecutive defence of the 1.4000 level. The bounce comes on a morning when the US dollar is losing ground against most other major currencies, leaving the Canadian dollar as a notable laggard. Statistics Canada reported that the economy grew 0.3% in May, ahead of the agency's own advance estimate, and the calendar now turns to next Friday's employment reports on both sides of the border.

Market Overview:

Risk appetite is recovering into month end. Global equities are rebounding after Citadel stepped in to buy the stock portfolio of the stressed AI fund Situational Awareness, with South Korea's Kospi posting an 18% overnight surge that Bloomberg described as unprecedented. US indexes opened higher before fading as Treasury yields climbed, per TheStreet. The US dollar is softer against most major currencies after Thursday's coordinated intervention by Japan and South Korea, but the Canadian dollar is not participating in the move, with crude lower on the session removing its usual support. The result is a firmer USD/CAD even as the broad dollar tone stays soft.

Citadel Steps In, the AI Unwind Finds a Buyer:

The forced deleveraging behind this week's technology selloff reached a resolution point on Thursday. Bloomberg and Reuters reported that Citadel acquired the bulk of the public stock portfolio of Situational Awareness, the AI focused fund founded by Leopold Aschenbrenner, after falling valuations triggered margin calls from the fund's lenders. The acquired positions included large stakes in Broadcom, Intel, CoreWeave and SK Hynix, according to Seeking Alpha. The purchase reduces the risk of a disorderly liquidation of AI related holdings, and the relief was most visible in Seoul, where SK Hynix rose by its 30% daily limit after weeks at the centre of the leveraged unwind. The episode caps a month in which semiconductor stocks swung from record gains to their worst stretch in years, and it is the main reason equity sentiment has steadied into the weekend.

Tokyo and Seoul Push Back on the Dollar:

Japan and South Korea carried out a rare joint currency intervention during Thursday's US session, according to Reuters, with sources suggesting Washington may have offered support beyond public statements. The yen jumped more than 3% to as strong as 157.8 per dollar, one week after touching a near 40 year low of 163.99, and the won firmed 2% to its strongest level in nine months. Separately, the Bank of Japan held its policy rate at 1.0% overnight on an 8 to 1 vote, per CNBC, and warned that core inflation is likely to accelerate to a level clearly above its 2% target in the second half of fiscal 2026, citing wage passthrough, higher energy costs and the weak yen. Governor Ueda told reporters the committee must focus on upside price risks, and markets continue to expect additional tightening before year end, with October and December the main candidates.

Euro Area Inflation Keeps the ECB on Course:

Eurozone consumer prices rose 2.9% in the year to July, up from 2.8% in June, with core inflation ticking up to 2.5% and services inflation running at 3.3%, according to Eurostat's flash estimate. Energy led the acceleration, with prices up 10% from a year earlier as the effects of the Middle East conflict continue to feed through. RTE reports the data strengthens an already firm case for another European Central Bank rate hike, with policymakers having signalled a move at the September 10 meeting. A tightening ECB alongside a patient Fed remains part of the soft backdrop for the US dollar.

Canadian Data/Outlook:

The Canadian economy grew 0.3% in May, matching the consensus forecast and topping Statistics Canada's own advance estimate of 0.1%. Mining, quarrying and oil and gas extraction led growth for a second straight month, and real estate activity added to the gain as the spring housing market warmed in Ontario and British Columbia, per BNN Bloomberg. April growth was 0.6%, the agency's flash estimate points to a further 0.2% gain in June, and the advance read has second quarter GDP rising 3.4% annualized, a sharp rebound from the mild first quarter contraction. The report argues against any near term easing from the Bank of Canada, which has held its policy rate at 2.25% at each of its last six announcements. The next decision lands September 2, and next Friday's July employment report, with consensus near a 15,000 job gain and the unemployment rate steady at 6.5%, is the key domestic input before then. Canadian markets are closed Monday for the civic holiday.

Fed Watch:

The next decision lands September 16. CME FedWatch data show markets assigning roughly an 82% probability to a quarter point hike by that meeting, up from about 52% in mid July, as reported by Yahoo Finance. That pricing sits in tension with two things. Economists surveyed by FactSet still expect no hike this year, and Thursday's June core PCE reading of 0.1% on the month was the most benign in months, which weakens the case for tightening. Chair Warsh's Wednesday press conference left markets unconvinced the committee is in a hurry, and pricing has been unusually volatile since. Next Friday's July payrolls report, with consensus near 88,000, is the first major test for September odds.

Technical Picture:

Resistance: 1.4059, this morning's session high, is the first hurdle; above that, 1.4070, the floor of the old late July range, and 1.4111, Wednesday's pre decision high, cap the recovery.
Support: 1.4004, this morning's low, marks the second straight defence of the 1.4000 psychological level; below that, 1.3990, Thursday's low, is the week's floor, ahead of the 1.3900 area CIBC flagged earlier this week as its medium term target.
Outlook: The pair has tested and held the 1.4000 area in consecutive sessions, and today's bounce looks corrective within the post Fed downtrend. A daily close back above 1.4070 would put the pair back inside its former range and neutralize the breakdown, while a close below 1.3990 would confirm it and open the path toward 1.3900.

Week Ahead:

Next Friday is the pivot of the week, with employment reports on both sides of the border released the same morning. September Fed pricing has become the dominant driver of USD/CAD direction, and an 88,000 consensus for US payrolls leaves plenty of room for surprise in either direction. The Canadian jobs number is the last major domestic reading before the September 2 Bank of Canada decision.

Other Notes:

• Oil is lower on the session but closes July with a gain of more than 20%. Brent is trading near US$88 per barrel and WTI near US$82, per Rigzone, with the US and Iran standoff unresolved and headline risk elevated into the long weekend.
• Long end US Treasury yields are climbing again, and TheStreet reports the S&P 500 slipping from its early highs as yields rose. The 30 year yield touched 5.30% on Thursday, its highest since 2007.
• Amazon shares rose after strong second quarter results while Apple fell on a disappointing outlook, per TheStreet, a split that kept the major US indexes mixed despite the technology rebound.