USD/CAD Market Update

Current Level: Mid-1.37s (24hr range 1.3732 to 1.3782)

USD/CAD is trading near 1.3749, down 33 pips from Thursday's close of 1.3782, inside a 1.3732 to 1.3782 range. The low takes out the May 21 low at 1.3737, which makes this the pair's weakest level in three months. CIBC reports the pair in the mid-1.37s on continued broad based US dollar weakness and says that at the current pace its 1.3700 year end target could be reached as soon as next week. The slide comes on the day the Section 338 tariff pause runs out, with no final agreement announced as of this morning.

Market Overview:

Risk appetite is mixed. CIBC reports investors digesting one of the more consequential weeks of the year, in which fiscal debt concerns collided with the US Treasury's signal that it will support the bond market. Bond markets are quieter this morning after the week's sharp swings. Equity markets are modestly higher, but CIBC notes the major indices remain on track for a weekly decline as fiscal concerns outweigh strong liquidity and policy support. The US dollar remains under pressure against the G10 basket and has extended this week's decline to multi-month lows, per CIBC. Commodities are well supported, with crude firm and hard assets outperforming. Attention is already shifting to next week's Jackson Hole symposium, which CIBC flags as the next major event for markets.

Tariff Deadline Expires Tonight:

The three day pause on the additional 50% Section 338 duties runs out at the end of the day. Negotiators met in Washington on Wednesday and Thursday without producing a final deal, per CNBC. If no agreement is announced, the duties apply to Canadian goods entering the United States from Saturday, and they apply whether or not a good qualifies under USMCA. The contours under discussion have firmed. The Globe and Mail reports the latest US offer would lower tariffs on Canadian made vehicles to a headline rate of 15%, down from the current 25%, while Washington's asks include an end to Canadian retaliatory tariffs on US autos, provincial bans on American alcohol lifted, Buy Canadian procurement rules cancelled, and changes to how supply managed dairy licences are allocated. Prime Minister Carney's most recent public characterization is that substantial progress has been made while important work remains. Today's CIBC note does not cover the file, so this framing comes from public reporting. Positioning is the risk. The pair has fallen roughly 150 pips from Tuesday's close and sits at a three month low, which means a completed deal is partly in the price while a failure is not. The asymmetry for hedgers continues to favour protecting against a failed deal rather than chasing a successful one.

Debasement Trade Revival:

CIBC reports investors still debating the implications of Treasury Secretary Bessent's long end buyback announcement. The move briefly stabilized Treasury markets after a sharp rise in long end yields, but CIBC says it also reignited the debasement trade that ran through much of 2025, with investors rotating out of currencies and into hard assets. Gold has pushed to its highest level since May and reclaimed its 200 day moving average, per CIBC, trading near US$4,500 per ounce after jumping more than 4% on Wednesday's buyback announcement, per BullionVault. Bitcoin is on track for its strongest weekly gain since 2023, per CIBC, and is on course for its first positive August since 2021, per CoinDesk. CIBC's view is that the bond market got some relief this week, but the strength in hard assets suggests investors are still positioning for fiscal dominance and further US dollar debasement. That is the same force this report has tracked all week. The US dollar, rather than the Treasury curve, is absorbing the fiscal adjustment, and USD/CAD's move into the mid-1.37s is part of that broader repricing.

Canadian Data/Outlook:

June retail sales beat expectations. Sales rose 0.6% on the month against 0.4% expected, reaching C$74.28 billion, with gains in seven of nine subsectors and volumes up 1.5%, per Statistics Canada. Clothing and accessories led with a 3.1% jump, and CIBC notes the beat extended to the ex-auto reading as well. The caution flag is the advance estimate for July, which points to a 0.8% decline, and CIBC says enthusiasm should be tempered for that reason. CIBC's economists continue to see a gradual improvement in consumer spending into next year, which underpins their stronger Canadian dollar forecast. 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 3%, down from 5% on Thursday, with no cut priced. Monthly GDP for June lands on August 28, with consensus at 0.2% after 0.3%, and the Bank of Canada decides on September 2.

Fed Watch:

The next decision lands September 16. CME FedWatch shows roughly a 68% probability that the target range stays at 3.50% to 3.75%, with the balance priced for a 25 basis point hike and no cut priced. CIBC's Central Bank Watch is consistent at 34% for a hike and 0% for a cut, little changed from 35% on Thursday. The gap between a Fed that is closer to hiking than cutting and a US dollar at multi-month lows remains the clearest evidence that this month's dollar decline is a fiscal story rather than a rates story. Jackson Hole runs August 27 to 29 and Chair Warsh delivers the keynote on Friday, August 28 at 7:00 a.m. Pacific, his first as Chair. With the Fed no longer signalling ahead of meetings, the speech is the main scheduled opportunity for the rates story to reassert itself before the September decision.

Technical Picture:

Resistance: 1.3782, today's high and Thursday's close. Above that, 1.3813, Thursday's high, then 1.3848, the 200 day moving average that broke on Wednesday and has not been retested.
Support: 1.3732, today's low, now beneath the May 21 low at 1.3737. Below that, 1.3700, CIBC's year end target and a round figure the market is watching closely.
Outlook: The trend is lower. The pair has fallen roughly 150 pips from Tuesday's close without a meaningful bounce, and momentum favours a test of 1.3700 while the US dollar stays under pressure. Tonight's tariff outcome is the reversal risk. A failed deal would put 1.3813 and then 1.3848 back in play quickly, while a completed deal with the pair already at three month lows may deliver less follow through than the headlines suggest. CIBC says updated forecasts are expected from its strategists next week, and it has already signalled it will consider lowering the 1.3700 target.

Week Ahead:

Tonight's tariff outcome is the only event on the board capable of moving the pair by a full figure before Jackson Hole. Next week belongs to the symposium, with Warsh's Friday keynote landing alongside Canadian GDP and the US payrolls benchmark revision in the same session. The Bank of Canada decision on September 2 sits at the edge of this window and is priced for no change.

Other Notes:

• Crude remains firm, with Brent near US$93.86 per Trading Economics and WTI trading in the mid US$80s, a fifth session of support that continues to help the Canadian dollar on the terms of trade side.
• CIBC's strategists are expected to publish updated FX forecasts next week. The current year end USD/CAD target is 1.3700, and CIBC has said the risks are skewed toward further Canadian dollar strength.