USD/CAD Market Update

Current Level: Low-1.39s (24hr range 1.3908 to 1.3938)

USD/CAD is trading near 1.3912 after July US inflation landed exactly on consensus, below Tuesday's close of 1.3921 and inside a 1.3908 to 1.3938 range. The low is the weakest print since late June and clears the 1.3925 shelf that turned the pair back on the August 7 and August 10 sessions. CIBC reports the US dollar softer against the G10 basket, with cooling inflation reinforcing expectations that the Federal Reserve stays on hold.

Market Overview:

Risk appetite is firmer. CIBC reports equities trading near record highs following the in-line inflation report, with global bond yields lower across the curve as the data put a lid on the hawkish Fed camp. The S&P 500 rose 0.3%, the Nasdaq Composite gained 0.7% and the Dow Jones Industrial Average was roughly flat, according to Yahoo Finance. That recovers Tuesday's declines, which left the three indices at 7,728.20, 26,445.45 and 53,791.85 respectively, per CNBC. Technology earnings added support, with CoreWeave up 18% and Super Micro Computer up 9% after their quarterly results. The cross asset reaction has been orderly. Investors priced out near term tightening, and the US dollar came under pressure across the majors.

July CPI Lands Exactly on Consensus:

Headline consumer prices rose 0.1% in July against a 0.1% consensus, following a 0.4% decline in June, leaving the annual rate at 3.4% from 3.5%. Core prices rose 0.2% on the month against 0.2% expected, after a flat June reading, with the annual core rate easing to 2.5% from 2.6%. Every line matched the forecast. CIBC's read is that the report removes the risk of an upside inflation surprise and reinforces the view that inflation continues to ease gradually, giving the Federal Reserve more flexibility to focus on signs of slowing growth and a softer labour market. The bank's take is that nothing in the report changes the Fed narrative, with September still looking like a hold, and that attention now shifts to the central bank symposium at Jackson Hole later this month.

The Tariff Deadline Is Now the Larger Canadian Risk:

With the inflation print behind the market, the August 19 deadline in trade negotiations with Washington becomes the dominant domestic input, seven days out. Section 338 tariffs of an additional 50% would take effect at 12:01 a.m. Eastern on that date, covering roughly US$20 billion of Canadian exports across 554 tariff lines, per The Globe and Mail. Trade Minister Dominic LeBlanc has made two Washington trips in as many weeks alongside chief negotiator Janice Charette, and described his meeting with US Trade Representative Jamieson Greer as constructive and detailed, with daily meetings now running at various levels. Candace Laing, president of the Canadian Chamber of Commerce, said good progress has been made and that there is a path forward for an interim deal, while cautioning that any agreement requires approval in the Oval Office. Washington's asks are specific: drop countertariffs on US built cars, relax dairy trade limits, and reverse provincial decisions to pull US alcohol from store shelves. Those headlines remain a two way risk for the Canadian dollar into next week.

Canadian Data/Outlook:

There are no Canadian releases today. The next domestic input is July CPI on August 17, where the previous readings were 1.9% on the median measure and 1.8% on the trimmed measure. 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 2%, down from 4% on Tuesday, with no cut priced. Canadian rate expectations are effectively flat, which leaves USD/CAD taking its direction from the US leg of the trade and from the tariff file.

Fed Watch:

The next decision lands September 16. CIBC's Central Bank Watch puts the implied probability of a 25 basis point hike at 37%, with no cut priced, down from 47% on Tuesday. CIBC reports markets have further reduced September tightening expectations, with implied pricing now at just 9 basis points against more than 25 basis points priced last month. That is a long way from the roughly 82% hike probability CME FedWatch showed after last month's FOMC statement, per Yahoo Finance. The repricing began with the July employment report on August 7, which showed the economy shedding 23,000 jobs against a consensus of 83,000, with May revised down by 66,000 and June by 37,000, leaving the two months a combined 103,000 lower, according to the Bureau of Labor Statistics and CNBC. Today's inflation report removed the offsetting argument. CIBC's characterisation is that the data give rates markets confidence the Fed can stay patient.

Technical Picture:

Resistance: 1.3938, today's high, which capped the initial post release bounce. Above that, 1.3967, the August 10 high that held for two sessions, with 1.4000 the larger barrier.
Support: 1.3908, today's low and the weakest print since late June. Below that, 1.3900, where CIBC places the 200 day exponential moving average.
Outlook: The 1.3925 shelf is gone. It held on August 7 and again on August 10, was breached at 1.3914 on Tuesday and traded through to 1.3908 today, which converts it to the first zone sellers defend on any bounce. The session covered 30 pips against 34 on Tuesday, so the break came without an expansion in range, and that argues for a grind lower rather than acceleration. The next reference is 1.3900. CIBC strategists continue to target 1.3700 by year end on cooling US growth and easing inflation, and say today's data reaffirms that view. The risk to that position is the tariff file rather than anything left on this week's US calendar.

Week Ahead:

The US calendar thins after Friday. Producer prices tomorrow and retail sales Friday will refine the growth picture, but neither carries the weight of today's release. August 17 brings Canada's July CPI, the first domestic data of consequence since the July employment report, and August 19 remains the most consequential date on the Canadian calendar, carrying the FOMC minutes and the tariff deadline in the same session. Beyond the window, CIBC points to the Jackson Hole symposium later this month as the next scheduled test of the Fed narrative.

Other Notes:

• Gold reached US$4,434.84 per ounce, its highest since June 5, and was trading near US$4,427.72, up 1.36% on the session, per MarketScreener. CIBC attributes the strength to softer US data over the past two weeks, ETF inflows, continued central bank buying and Chinese demand.
• Crude has given back a small part of this week's rally. Brent is near US$88.44 per barrel, down 0.52%, and WTI is near US$82.93, down 0.33%, per Trading Economics. US crude inventories rose 9.1 million barrels last week, the largest weekly build since February, which offsets part of the supply premium from the stalled Strait of Hormuz negotiation.
• The July unemployment rate fell to 4.1% from 4.2% even as payrolls contracted by 23,000. Losses were concentrated in local government education, down 50,000, leisure and hospitality, down 40,000, and retail trade, down 19,000, per the Bureau of Labor Statistics.