USD/CAD Market Update

Current Level: Low-1.38s (24hr range 1.3836 to 1.3908)

USD/CAD is trading near 1.3840, down 59 pips from Tuesday's close of 1.3899, inside a 1.3836 to 1.3908 range. That is a 72 pip session against 19 pips on Tuesday morning, and the low takes out Monday's 1.3844, which FXStreet identified as the lowest level since June 3. Two catalysts landed within hours of each other and both favour the Canadian dollar. President Trump paused the threatened Section 338 tariffs late Tuesday, and the US Treasury unexpectedly doubled the size of its long end buyback operations, sending the US dollar and long bond yields lower together.

Market Overview:

Risk appetite has improved. CIBC reports equities mostly higher after the Treasury stepped in to support the long end of the bond market, and TheStreet and CNBC have the major indices recovering from Tuesday's selloff. The rates move is the centre of it. The 30 year Treasury yield fell almost 9 basis points to 5.196% after setting a 19 year high above 5.33% on Tuesday, and the 10 year shed 6 basis points to 4.647%, per CNBC. CIBC reports the US dollar lower against the G10 basket. Crude adds a third leg of support. Brent is near US$91.52, up 0.55% on the day and higher for a fourth consecutive session, per Trading Economics. For once the drivers are not cancelling each other out. Lower US yields, a weaker US dollar, firmer crude and a tariff reprieve all point the same way, which is why today's move is the largest of the week. There is no Canadian data on the calendar.

Tariffs Paused, Not Resolved:

President Trump announced late Tuesday that the additional 50% duties would be delayed, roughly 90 minutes before the 12:01 a.m. Eastern deadline, per NBC News. The pause runs through end of day Friday, August 21, per The Globe and Mail. CIBC and CTV News put the exposure at roughly US$28 billion of Canadian exports. A White House proclamation said Canada had committed to remove measures the administration considers discriminatory against US alcohol, dairy and motor vehicle exports, per NPR. Prime Minister Mark Carney said substantial progress has been made while important work remains, and confirmed Canada had agreed to the three day delay while negotiations continue. The terms under discussion are broad. The Globe and Mail reports the US would lower tariffs on Canadian autos, steel, aluminum and forest products, while Canada would drop its retaliatory tariffs, provincial governments would end bans on US alcohol sales and scrap Buy Canadian procurement rules, and Ottawa would accept Washington's interpretation of how supply managed dairy licences are allocated. That is a long list to close in three days. CIBC's read is that markets have grown numb to tariff threats, but that avoiding a 50% tariff is unequivocally positive for the Canadian dollar and supports its 1.3700 year end forecast. The point that matters for hedging is that the deadline has moved rather than disappeared. Friday reopens the same binary Wednesday was carrying, with less time on the clock.

Treasury Steps Into the Long End:

The Treasury announced it will at least double the maximum size of its liquidity support buyback operations in longer dated nominal coupon securities. The 10 to 20 year and 20 to 30 year sectors rise from a US$2 billion ceiling to at least US$4 billion each, effective September 9 and running through the refunding quarter that ends November 4, per the US Treasury. Officials attributed the increase to consistently strong participation and high quality offers in those maturities. The market read it as something larger. The announcement came days after the 30 year yield set a 19 year high, and CIBC's view is that Washington has acknowledged the warning shot the bond market fired this week, with strategists now working to locate the pain threshold for long term rates. CIBC is explicit that this is not quantitative easing, because the purchases come from the Treasury rather than the Federal Reserve and no new bank reserves are created, while noting that some investors are asking whether it is an early sign of fiscal dominance. The currency consequence was immediate, with the US dollar falling across the G10 basket as long yields dropped. It also reverses the dynamic this report has described for three consecutive sessions, in which the long end refused to rally on softer US data. Softer data did not turn it. The issuer did.

Canadian Data/Outlook:

There is no domestic release today. The policy rate is 2.25%, held on July 15. CIBC's Central Bank Watch puts the implied probability of a 25 basis point hike at the September 2 meeting at 5%, up from 3% on Tuesday and 2% on Monday, with no cut priced. Bond market pricing is consistent, showing a high probability of no change and roughly a 1% chance of a hike. July inflation ran at 3.0% on the year, at the ceiling of the Bank's 1% to 3% control range, but CPI trim at 1.9% and CPI median at 2.0% are the measures the Bank reacts to and both sit at target. The next release is June retail sales on Friday at 5:30 a.m. Pacific, where Statistics Canada's advance estimate points to a 0.4% monthly gain after a 1.0% increase in May, per Bloomberg. It lands the same day as the extended tariff deadline and will be the smaller of the two events. Monthly GDP follows on August 28 and the Bank of Canada decides on September 2.

Fed Watch:

The minutes of the July 28 to 29 FOMC meeting are released today at 11:00 a.m. Pacific. That meeting produced a 9 to 3 hold, and all three dissents favoured a hike rather than a cut, so the minutes are a read on how close the committee came to tightening rather than on the timing of any easing. CME FedWatch shows roughly a 65% probability that the target range stays at 3.50% to 3.75% on September 16, with about 32% priced for a 25 basis point hike to 3.75% to 4.00% and no cut priced. CIBC's Central Bank Watch is consistent at 35% for a hike and 0% for a cut. The interpretation risk runs in one direction today. Positioning is short US dollars after two soft inflation prints, a 0.6% decline in July retail sales and Tuesday's 12.4% drop in housing starts, so minutes that read more hawkish than the July statement would meet a crowded trade. Jackson Hole follows on August 27 to 29.

Technical Picture:

Resistance: 1.3848, the 200 day moving average that contained the pair for four sessions and now sits overhead. Above that, 1.3899, Tuesday's close, then 1.3908, today's high, and 1.3912.
Support: 1.3836, today's low and the weakest print since early June. RoboForex marks 1.3825 beneath it in its weekly note for August 17 to 21. Below that there is little structure before 1.3700, CIBC's year end target, which its strategists reaffirmed today while noting it may now arrive sooner than they had anticipated.
Outlook: The four session coil between 1.3844 and 1.3881 has broken lower, and it broke through the 200 day moving average rather than bouncing off it. That is the meaningful change. The trigger was scheduled and it resolved in the Canadian dollar's favour, which is the outcome yesterday's report identified as opening the path toward 1.3700. The qualification is that the resolution is temporary. An agreement by Friday validates the break and makes 1.3700 the working target. A Friday failure puts 1.3848 back in play quickly, and the speed of today's move is a fair guide to how fast it would retrace.

Week Ahead:

Friday now carries the week. The extended tariff deadline and June retail sales land in the same session, and the tariff outcome is the one capable of moving the Canadian dollar in size. Today's FOMC minutes are the other event with genuine two way risk, given how much short US dollar positioning has built up this month. The Bank of Canada decision on September 2 sits at the far edge of this window and is priced for no change.

Other Notes:

• Brent is near US$91.52 and higher for a fourth consecutive session, per Trading Economics, with Iran maintaining that the US naval blockade must lift before the Strait of Hormuz can fully reopen. The Energy Information Administration does not expect Middle East production near pre-conflict levels until early 2027. Energy is now a structural support for the Canadian dollar rather than the drag it was in early August.
• Gold is higher on the session. CIBC reports a move of nearly 3% following the buyback announcement and identifies the 200 day moving average near 4,510 as the next reference. FXStreet has XAU/USD near US$4,370. The size of the move differs across sources, the direction does not.
• Moderna has roughly doubled, up more than 90% and heading for its best day on record, per CNBC, after an experimental skin cancer vaccine developed with Merck succeeded in a late stage trial. It is a single stock story rather than a macro one, but it is doing visible work in today's equity recovery.