USD/CAD Market Update

Current Level: Upper-1.38s (24hr range 1.3867 to 1.3891)

USD/CAD is trading near 1.3869, down 7 pips from Wednesday's close of 1.3876, inside a 1.3867 to 1.3891 range. That is a 24 pip session, the narrowest of the week, and it reflects positioning ahead of tomorrow's Jackson Hole keynote rather than any change in the story. CIBC reports traders placing their final bets ahead of the symposium, and the trade file is quiet for the first time in a week. Wednesday's break higher has held without extending, with today's high stalling 3 pips under yesterday's 1.3894 top.

Market Overview:

Risk appetite is improving. CIBC reports equity markets higher after Nvidia's earnings topped expectations on revenue, earnings and forward guidance, reinforcing confidence that the AI spending cycle remains intact. Global bond yields are little changed as markets await tomorrow's speech, per CIBC, and the US dollar is slightly weaker against the G10 basket. That combination makes today's steady USD/CAD a mild underperformance for the Canadian dollar, since a softer dollar and a firmer risk tone would normally pull the pair lower. Energy explains part of it. WTI is trading near US$80.90 and edging lower as talks between Iran and Oman over reopening the Strait of Hormuz continue to make progress, per FXStreet. Softer crude keeps eroding a support the Canadian dollar leaned on through most of August.

Jackson Hole Holding Pattern:

Fed Chair Kevin Warsh delivers his first Jackson Hole keynote tomorrow at 7:00am Pacific, nineteen days before the September 16 FOMC decision. Warsh has curtailed forward guidance since taking office in May, and few expect him to lay out a road map for the Fed's next moves, so the base case is a speech long on framework and short on signal. That is why the risk is asymmetric. With no cut priced at any relevant horizon and hike odds near one in three, any substantive remark on how Warsh reads the inflation picture would move the front end of the curve. A hawkish debut following Wednesday's core PCE print, which held at 3.3% year over year and showed no renewed disinflation, remains the cleanest route to a stronger US dollar this week and would compound the trade driven bid under USD/CAD. A non-event would likely see this week's positioning unwind and hand the pair back toward the 1.3836 floor.

Nvidia Resets the Risk Tone:

Nvidia's results were exceptional, with revenue, earnings and forward guidance all topping expectations, per CIBC. Revenue rose 106% year over year to US$96.2 billion, and CIBC reads the report as confirmation that hyperscalers remain committed to aggressive AI capital spending. Equity markets are higher on the release. For this pair the transmission is indirect but real. A firm risk tone supports commodity currencies at the margin and caps the pace of any USD/CAD advance, which is part of why a quiet session is drifting slightly lower rather than higher.

Canadian Data/Outlook:

There is no Canadian data today. June GDP lands tomorrow at 5:30am Pacific with consensus at 0.2% on the month against 0.3% prior. The reading predates the US tariffs that took effect August 22, so it measures the economy's starting point rather than the damage. The Bank of Canada decides September 2 with the overnight rate at 2.25%. CIBC's central bank monitor now shows a 10% probability of a 25 basis point hike and a 0% probability of a cut, up from the 1% hike odds priced earlier this week. That drift is worth noting because it runs against the trade story. CIBC's economists expect the Bank to remain on hold until early to mid 2027 as trade tensions create offsetting risks to growth and inflation, and they read the recent pickup in employment and wages as evidence the labour market is gradually stabilizing. The September 4 employment report, with the prior month at 75.1K and the unemployment rate at 6.4%, remains a more likely trigger for a repricing than the decision itself.

Fed Watch:

CIBC's central bank monitor shows a 32% probability of a 25 basis point hike at the September 16 FOMC and a 0% probability of a cut, down from 39% on Wednesday. CME FedWatch pricing as of August 20 implied roughly a 68% chance of a hold, so market venues continue to cluster near one in three odds of a hike. Wednesday's core PCE print kept the debate open without settling it, and the odds have now drifted lower for two sessions into the speech. Tomorrow also brings the annual benchmark revision to US payrolls at 7:00am Pacific, the same hour as the Warsh keynote. Last year's revision subtracted 911K jobs, and another large downward revision would give the dovish side its first data point of September before the month's employment report even lands.

Technical Picture:

Resistance: 1.3891 is today's high and the first level. Yesterday's 1.3894 top sits immediately behind it, and the pair has now stalled twice within 3 pips of that level without breaking. Above there, 1.3908 is the August 19 swing high, and a close through it opens CIBC's 1.40 area.
Support: 1.3867 is today's low and the floor of the consolidation. Below that, 1.3836 is Wednesday's low and the base of this week's break, and 1.3783 is the August 24 low.
Outlook: The pair has posted three consecutive higher lows and is compressing under the 1.3891 to 1.3908 cap in the narrowest range of the week. That is compression ahead of an event, not a top, and the resolution almost certainly waits for tomorrow's keynote and the GDP print ninety minutes before it. CIBC sees the pair below model implied fair value with near-term risk toward 1.40 and a 1.37 target for year end. For hedgers the guidance is unchanged from Wednesday. Exporters selling US dollars are 138 pips better than the August 21 low and should be scaling in rather than waiting for 1.40 to print. Importers should treat a daily close above 1.3908 as confirmation the 1.40 area is live, and a failure back below 1.3836 as the first sign the tariff premium is unwinding.

Week Ahead:

Tomorrow is the crowded day, with Canadian GDP at 5:30am Pacific and the Warsh keynote and payrolls revision ninety minutes later. The September 2 Bank of Canada decision is priced for a hold, which leaves the September 4 jobs data on both sides of the border and the September 8 retaliation date as the next genuine two sided risks.

Other Notes:

• WTI is trading near US$80.90 as Iran and Oman continue talks on reopening the Strait of Hormuz, per FXStreet. A reopening would extend the slide in crude and remove more of the Canadian dollar's commodity support.
• CIBC's top FX idea remains AUD/CAD higher, supported by attractive carry and potential upside from Chinese stimulus.