USD/CAD Market Update

Current Level: Mid-1.39s (24hr range 1.3928 to 1.3946)

USD/CAD is trading near 1.3937, marginally below Monday's close of 1.3940, after holding a range of just 18 pips between 1.3928 and 1.3946. That is the tightest session since the August 7 employment reports, and the third consecutive test of the 1.3925 shelf established on that day. CIBC reports the Canadian dollar outperforming most G10 peers, with elevated energy prices providing the support. Positioning is otherwise frozen ahead of tomorrow's US inflation report.

Market Overview:

Risk appetite is constructive. CIBC reports the major indices holding near record highs as markets look past geopolitical headlines and wait for tomorrow's inflation data. Monday closed marginally lower across the board, with the S&P 500 at 7,753, the Nasdaq at 26,605 and the Dow at 53,976, according to the Rio Times global economy briefing, which also puts the US dollar index at 99.748, up 0.21% on the session, and the VIX at 15.51. The US 10 year Treasury yield is near 4.699% and higher on the day, as firmer crude revives the inflation question. CIBC's characterisation is that nobody wants to make a large bet 24 hours before CPI, and the price action shows it. USD/CAD, EUR/USD near 1.1542 and most of the G10 complex are all holding narrow ranges.

Crude Above US$82 Is Doing the Work for the Canadian Dollar:

Energy is the reason the Canadian dollar is outperforming. WTI crude is near US$82.25 per barrel, up 0.15% on the session, per Trading Economics, after Monday's rally of roughly 5% to a close of US$82.13. Brent settled near US$87.72 on Monday and has since extended toward US$89.21, a fourth consecutive session of gains. The driver is the stalled Strait of Hormuz negotiation. CNBC reports Iran's Foreign Ministry saying the United States must lift its naval blockade before Tehran will agree to fully reopen the waterway, with the spokesman stating that as long as the blockade continues, the conditions for reopening do not exist. President Trump told Axios that the United States is only semi negotiating with Iran, and indicated he will rely on the blockade rather than another wave of airstrikes. Tuesday's tape ran both ways. Pakistan's defence minister said the two sides were close to some form of arrangement, which pressured prices early, before Trump added a demand for Iranian compensation for conflict related deaths, per Trading Economics. CIBC's read is that oil is trading on headlines rather than fundamentals, and that the resulting volatility is not going away.

Tomorrow's CPI Is the Week's Only Real Catalyst:

July consumer prices land tomorrow at 5:30 a.m. Pacific. Consensus looks for headline CPI to rise 0.1% on the month after a 0.4% decline in June, leaving the annual rate at 3.4% from 3.5%. Core is expected at 0.2% on the month and 2.5% on the year, one tick below June's 2.6%. CNBC reported Monday that prediction markets point to a tame print. CIBC frames the risk as asymmetric: a soft reading reinforces the view that the Federal Reserve stays on hold, while a hotter number could trigger a sharp repricing across markets. CIBC also notes the Fed is not ready to declare victory on inflation, arguing price pressures have not fully disappeared despite improving trends in recent months. The complication is crude. Energy has been the main upside risk to the inflation outlook all summer, and a fourth straight session of gains in Brent lands the day before the print.

RBA Holds and Takes a Cut Off the Table:

The Reserve Bank of Australia left its cash rate at 4.35%, in line with expectations and the second consecutive hold. CIBC reports policymakers noting that financial conditions have tightened and that activity is slowing as expected following earlier hikes. Governor Bullock said the board weighed a hold against a rise and did not discuss a cut, and she declined to rule out further tightening. The updated Statement on Monetary Policy takes a slightly more constructive view of the economy than the May version, with the trimmed mean measure of inflation now seen moderating to 3.3% by the end of 2026, down from 3.5% previously. The relevance for USD/CAD is the regime rather than the decision. Across the developed world the live debate is whether to tighten further, not when to ease, and that is the same framework governing September Fed pricing.

Canadian Data/Outlook:

There are no Canadian releases today, and none scheduled this week. The next domestic input is July CPI on August 17. The Bank of Canada has held its policy rate at 2.25% for six consecutive announcements, and CIBC's Central Bank Watch puts the implied probability of a 25 basis point hike at the September 2 meeting at 4%, down from 5% on Monday, with no cut priced. The larger domestic risk is the August 19 tariff deadline, now eight days out. Washington has said it will apply 50% tariffs under Section 338 to roughly 5% of Canadian exports, covering goods ranging from alcohol to cement to hockey sticks, per CBC. Minister LeBlanc met US Trade Representative Jamieson Greer in Washington and has since met business leaders and Republican senators to advance the talks. Prime Minister Carney says Canada's tone is already quite firm and describes the negotiations as constructive, while stating he is not interested in a narrow deal and that the days before the deadline are the time to get tougher, according to The Globe and Mail and BNN Bloomberg. Those headlines remain a two way risk for the Canadian dollar into next week.

Fed Watch:

The next decision lands September 16. CIBC's Central Bank Watch puts the implied probability of a 25 basis point hike at 47%, with no cut priced, up one point from Monday. CME FedWatch pricing is effectively a coin flip, at roughly 50% for a hold against 50% for a hike. That is a long way from the roughly 82% hike probability priced immediately after last month's statement, and from the 62% seen a week ago. The US 10 year Treasury yield is near 4.699%, having fallen to 4.637% in the wake of the July payrolls miss. Tomorrow's CPI is the only scheduled release before the August employment report with the capacity to move that pricing meaningfully, which is why CIBC expects most of this week's USD/CAD movement to come from it.

Technical Picture:

Resistance: 1.3967, Monday's high, which has now capped the pair for two sessions. Above that, 1.4000, the former floor that turned back three recovery attempts between July 30 and August 6.
Support: 1.3925, the August 7 low, tested again at 1.3926 on Monday and 1.3928 today. Below that, 1.3900, where CIBC places the 200 day exponential moving average.
Outlook: The pair is coiling rather than trending. The session spanned 18 pips against 41 on Monday and 105 pips on the August 7 break, and the last three closes sit within 16 pips of each other. Three tests of 1.3925 without a break usually means the level holds until an event forces the issue, and that event is tomorrow morning. CIBC strategists continue to target 1.3700 by year end, with the focus squarely on the US leg of the trade rather than anything domestic. A soft CPI print opens 1.3900. A hot one puts 1.4000 back in play.

Week Ahead:

Tomorrow is the release that sets direction for the rest of the month. Beyond it, the calendar thins until August 17, when Canadian CPI gives the Bank of Canada its first new input since the July employment surprise. August 19 remains the most consequential date on the Canadian calendar, carrying both the FOMC minutes and the tariff deadline in the same session.

Other Notes:

• Gold is holding near US$4,400 per ounce. Monday's opening print was the highest since early June, per Yahoo Finance, with support coming from Hormuz tension, continued central bank buying and the repricing that followed the July payrolls miss.
• The yen is near 159.1 per dollar, back in the zone that prompted late July's coordinated intervention by Tokyo and Washington. The currency had strengthened to roughly 155 immediately after that operation, so the round trip is nearly complete and intervention risk is live again.
• ADP published its weekly employment pulse this morning. The prior reading covering the four weeks to July 11 showed private employers adding an average of 15,000 jobs per week, with hiring slowing for a fifth straight week, according to ADP Research. That is the backdrop against which tomorrow's inflation print will be read.