USD/CAD Market Update

Current Level: Mid-1.40s (24hr range 1.4030 to 1.4073)

USD/CAD is trading near 1.4059 this morning, up from Monday's holiday-thinned close of 1.4013 after an overnight climb to 1.4073. The move is an oil story: crude has broken below US$80 per barrel on growing optimism that Qatar can broker a short-term agreement between Washington and Tehran, removing the commodity support that helped the Canadian dollar defend the 1.4000 level last week. The calendar builds toward Friday, when Canadian and US employment reports land simultaneously.

Market Overview:

Risk appetite is firmer this morning. CIBC reports equity markets sharply higher as dip buyers return to AI names, and earnings season remains supportive with 86% of S&P 500 companies beating expectations so far. Global bond yields are modestly lower as optimism around a potential US-Iran deal drains some of the geopolitical risk premium built up in recent weeks. The US dollar is mixed against the G10 basket, but the Canadian dollar is not participating in the firmer tone, with the slide in crude leaving it a notable laggard once again.

Qatar Signals Progress on a US-Iran Deal, Oil Breaks US$80:

The diplomatic track is moving. Qatar's foreign ministry confirmed that language for a possible short-term agreement between the United States and Iran has been drafted and is being circulated between the parties, according to Bloomberg, with the focus on a resolution that would restart direct talks and return both sides to mediation. US Treasury Secretary Scott Bessent sounded hopeful on an arrangement that would reopen the Strait of Hormuz. President Trump described the talks as Iran's last chance, per Bloomberg, and no agreement has been finalized. Energy markets are treating the progress as real: WTI crude fell below US$80 per barrel for the first time since mid-July and is trading near US$76.50, down more than 4% on the session, per Trading Economics. CIBC cautions against chasing the move too aggressively while the situation remains unresolved, noting WTI has completed a textbook retracement of its April to June decline, a point where rallies in a broader downtrend often fade. For the Canadian dollar, the oil slide removes the tailwind that supported last week's defence of 1.4000.

Washington and Tokyo Hold the Line on the Yen:

The yen is holding near 157 per dollar, retaining most of the ground gained since last week's intervention, after CIBC reports it was confirmed that the operation was coordinated between the United States and Japan. Treasury Secretary Bessent warned that a weak yen risks fuelling inflation in Japan and, more importantly for global markets, risks destabilizing the Treasury market if Japan is forced to sell US bonds to defend its currency. He reiterated that US authorities remain in close contact with Tokyo and will support efforts to stabilize the currency. The pair remains well below the near four-decade low just under 164 touched in late July, and CIBC's view is that betting on renewed yen weakness looks unwise given the policy commitment now on display.

US Labour Market Week Opens Quietly:

The week's US data flow began this morning with the June JOLTS report, which showed job openings edging lower and the quits rate ticking down, per Seeking Alpha, consistent with a labour market that is cooling gradually rather than cracking. The main event is Friday's July nonfarm payrolls report. Consensus looks for a rebound to 88,000 jobs after June's weak 57,000 print, with the unemployment rate steady at 4.2% and average hourly earnings up 0.3% on the month. CIBC economists are a touch below consensus at 75,000 and a touch above on the unemployment rate at 4.3%, though they note that outcome would still describe a broadly balanced labour market. Their read on the market reaction is that the bar is high: investors and the Federal Reserve are focused on inflation rather than employment right now, so it would likely take a meaningful miss to materially shift rate expectations.

Canadian Data/Outlook:

Canada's merchandise trade surplus widened to $3.9 billion in June from $3.7 billion in May, a four-year high, according to Statistics Canada. Exports rose 0.4% to a record $77.5 billion, the fifth consecutive monthly increase, led by a 16.5% jump in metal and non-metallic mineral products on higher gold shipments to the United Kingdom, while imports edged up 0.2% to $73.6 billion. Yahoo Finance notes the widening largely reflects a weaker Canadian dollar rather than firmer underlying demand. The main domestic event is Friday's July employment report, with consensus near a 15,000 job gain and the unemployment rate steady at 6.5%. CIBC economists expect a softer 8,000 gain, noting temporary FIFA-related hiring may unwind in July, but argue the report is unlikely to move the Bank of Canada's outlook barring a major surprise. The Bank has held its policy rate at 2.25% for six consecutive announcements, and CIBC's central bank watch shows just a 1% implied probability of a hike at the September 2 meeting, with no cut priced.

Fed Watch:

The next decision lands September 16. CIBC's central bank watch puts the implied probability of a quarter point hike at that meeting at 62%, with no cut priced. That is a substantial retreat from the roughly 82% priced immediately after last week's statement, before Chair Warsh's press conference left markets unconvinced the committee is prepared to act. Pricing has been unusually sensitive to Fed commentary since, and this week's labour data is the first major test: an in-line payrolls report on Friday should leave September odds broadly unchanged, while a large surprise in either direction could reopen the debate.

Technical Picture:

Resistance: 1.4073, the overnight high and the strongest print since July 29; above that, 1.4100, the round number and the top of the range CIBC expects to hold this week, with the late July high at 1.4111 just beyond.
Support: 1.4030, the overnight low; below that, 1.4000, the floor CIBC has flagged as the key pivot, defended twice last week.
Outlook: CIBC strategists expect USD/CAD to remain rangebound between 1.4000 and 1.4100 this week, with risks around Friday's two employment reports seen as balanced. The oil tape is the wildcard: a finalized US-Iran arrangement would extend crude's decline and likely add to Canadian dollar headwinds.

Week Ahead:

Friday's simultaneous release of Canadian and US employment data is the pivotal event for USD/CAD. With CIBC seeing balanced risks around both reports, next Wednesday's US CPI print may ultimately carry more weight for September Fed pricing.

Other Notes:

• Earnings season remains supportive, with 86% of S&P 500 companies beating expectations so far, and CIBC highlights the S&P 500's relative valuation versus the MSCI World index falling to its lowest level since 2020.
• Global bond yields are modestly lower as the geopolitical risk premium unwinds; the long end remains the area to watch after last week's multi-decade highs in 30 year US Treasury yields.