USD/CAD Market Update

Current Level: Mid-1.39s (24hr range 1.3943 to 1.4029)

USD/CAD is trading near 1.3951 this morning, down from Thursday's close of 1.4013 and at its weakest level since late June. The two employment reports landed simultaneously at 5:30 a.m. Pacific and pointed in opposite directions. The 1.4000 level, which had turned the pair back on three separate attempts over the past two weeks, gave way within minutes of the release.

Market Overview:

Risk appetite is firmer this morning. CIBC reports equity markets higher and global bond yields lower, led by US Treasuries, as investors read the weak payrolls print as removing near term pressure on the Federal Reserve to raise rates. The US dollar is weaker against the full G10 basket rather than mixed, a change from the guarded tone that held all week ahead of the data. CIBC characterises the equity reaction as investors welcoming a central bank with no immediate need to tighten, rather than welcoming a softer economy, and notes that weaker growth is being treated as supportive for risk assets so long as inflation stays contained.

US Payrolls Turn Negative:

Nonfarm payrolls fell 23,000 in July against a consensus for a gain of about 80,000, according to CIBC, and the previous two months were revised down by a combined 103,000. CNBC reports the Bureau of Labor Statistics cut May to 63,000 from 129,000 and June to 20,000 from 57,000, leaving the three month average pace near 20,000 jobs per month. The unemployment rate fell to 4.1% from 4.2%, but CIBC notes the decline was driven in part by weaker labour force participation, which CNBC puts at 61.4%, the lowest in more than five years. Average hourly earnings rose 0.1% on the month against 0.3% expected, and the annual pace slipped to 3.2%. CIBC reports the losses were concentrated in government and hospitality roles. Its read is that the labour market remains near full employment but is showing fragility beneath the surface, which supports the Fed staying on the sidelines.

Canadian Data/Outlook:

Canada added 75,100 jobs in July, close to four times the consensus near 20,000, and the unemployment rate fell to 6.4% from 6.5% against expectations for no change. CIBC reports the hiring was broad based, led by wholesale and retail trade, with hours worked continuing to improve. Employment has now risen 181,000 over three months, the strongest stretch since before the US tariffs, and the unemployment rate is at its lowest since July 2024. CIBC's take is that the Canadian economy entered the third quarter with more momentum than expected, that the Bank of Canada is finished cutting, and that the committee will look to tighten early next year. Its Central Bank Watch puts the probability of a cut at the September 2 meeting at 0%, with a 25 basis point hike at 3%. That combination of firmer domestic data and a narrowing rate differential against the US is what gave the Canadian dollar the room to clear 1.4000.

Fed Watch:

Direction matters here. Markets have spent the summer pricing the risk of a Fed hike rather than a cut, and today's report reduced that probability rather than introducing any expectation of easing. CIBC's Central Bank Watch puts the odds of a 25 basis point hike at the September 16 meeting at 43%, with the probability of a cut at 0%. CME FedWatch data cited by CNBC showed the odds of a September move falling to roughly 44% immediately after the release, down sharply from where they sat earlier in the week. Two inflation reports and the August employment report land between now and the meeting, so the pricing has room to move again.

Technical Picture:

Resistance: 1.4000, the level that contained the pair on three attempts since July 30 and which now becomes the first hurdle on any recovery. Above that, 1.4082 marks the August 5 high and the top of this week's range.
Support: 1.3943, this session's low and the weakest print since late June. Below that, 1.3900 is the round number CIBC has been targeting since late July.
Outlook: The break was decisive rather than marginal. The session spanned 86 pips against 31 pips on Thursday, the widest daily range of the week, and the pair is holding near its lows rather than retracing. CIBC's strategists had flagged that a soft payrolls print should encourage a test of 1.3950, and that test has now happened. The team remains biased toward a weaker US dollar into year end. The next scheduled catalyst capable of reversing the move is US CPI on Wednesday.

Week Ahead:

Wednesday's US CPI is the decisive release. The payrolls report has taken the labour half of the Fed's mandate off the table as a reason to tighten, which leaves inflation as the only remaining argument for a September move. A soft print would likely extend the US dollar selloff. For the Canadian dollar, the August 19 tariff deadline is the larger domestic risk, and it lands two days after Canadian CPI.

Other Notes:

• Gold traded above US$4,300 per ounce following the payrolls report, per CIBC. CIBC cautions that the metal still needs to clear its 200 day moving average near US$4,490 before the move counts as a confirmed trend change, and notes China's central bank extended its gold buying to a 21st consecutive month in July.
• Brent crude is near US$82.13 per barrel, down 36 cents on the session and roughly 9% on the week, according to CNBC. An Iranian parliamentary committee is reviewing draft legislation that would restrict Strait of Hormuz transit for vessels from countries it deems hostile, which lifted prices more than 4% on Thursday before the market steadied.
• Canada and the United States continue to negotiate ahead of the August 19 deadline, when Washington has said it will apply 50% tariffs to a further basket of Canadian goods covering roughly 5% of Canadian exports to the US. CBC reports Prime Minister Carney describing the talks as covering all strategic sectors.