USD/CAD Market Update

Current Level: Mid-1.38s (24hr range 1.3845 to 1.3861)

USD/CAD is trading near 1.3853, up 1 pip from Thursday's close of 1.3852, inside a 1.3845 to 1.3861 range. That is a 16 pip session, the quietest of the week so far, and it reflects a market waiting on one event. CIBC reports price action muted ahead of Chair Warsh's speech at Jackson Hole, due this morning at 10:00am ET. This morning's strong Canadian GDP release barely moved the pair, which shows where the market's attention sits.

Market Overview:

Risk appetite is quiet. CIBC reports equity markets little changed as investors take a breather after Nvidia's results earlier in the week and wait for the keynote. Bond yields are modestly higher across the curve as traders place their final positions before the speech, per CIBC. The US dollar is flat against the G10 basket, energy markets are modestly lower and gold is little changed, per CIBC. With the dollar flat, crude drifting and the trade file quiet for a second day, there is no external push on the pair ahead of the speech.

Warsh's Jackson Hole Debut:

Fed Chair Kevin Warsh delivers his first Jackson Hole keynote this morning at 10:00am ET, nineteen days before the September 16 FOMC decision. This year's symposium focuses on financial innovation and payments, and CIBC expects a broader policy discussion rather than a major announcement on rates or the balance sheet. Warsh has worked to establish credibility by defending the Fed's 2% inflation target, and CIBC expects him to reinforce the importance of restoring price stability. A hawkish emphasis could support the US dollar and push yields modestly higher, although CIBC argues that hawkishness is largely priced in. CIBC frames the deeper issue as whether tighter monetary policy can coexist with Treasury buybacks and a government still running large deficits. That tension is visible in the long end. The 30 year Treasury yield closed at 5.31% on August 17, its highest since 2007, and the Treasury stepped into the bond market on August 19 to pull long term borrowing costs lower, per CNBC. Warsh has also drawn repeated criticism for declining to spell out the conditions that would move rates in either direction, and investors see today's address as his clearest opening yet to fill that gap, per CNBC. The setup is the same asymmetry flagged all week. With no cut priced at any relevant horizon and hike odds near one in three, any substantive comment on inflation moves the front end of the curve, while a framework speech with no rate signal would likely unwind the week's positioning.

Canadian GDP Beats the Bank's Forecast:

Statistics Canada reported second quarter growth of 3.3% annualized this morning, matching consensus and topping the Bank of Canada's July projection of 2.5%, per CBC and BNN Bloomberg. First quarter growth was revised up to a 0.3% expansion from a previously reported contraction, per Global News. The composition was strong. Exports rose 3.6% in the quarter, the fastest pace in more than three years, and business capital investment rose 2.3%, ending five consecutive quarterly declines, per CBC. Consumer spending and residential investment added to growth as well, per CIBC. The monthly path carries the caution. June GDP rose 0.3% against a 0.2% consensus, and July activity stalled, per CIBC. Every number in the release predates the US tariffs that took effect August 22. CIBC's read is that markets care about where growth is going rather than where it has been, with early third quarter tracking near the Bank of Canada's 1.5% forecast. That is why a headline this strong moved the pair by only a few pips.

Canadian Data/Outlook:

The Bank of Canada decides Wednesday, September 2 at 9:45am ET with the overnight rate at 2.25%. CIBC's central bank monitor shows an 11% probability of a 25 basis point hike and a 0% probability of a cut, up from 10% on Thursday and 1% earlier in the week, so the meeting remains priced for a sixth consecutive hold. CIBC's economists expect the Bank to stay on the sidelines until the first half of 2027, with today's constructive data offset by tariff uncertainty. The trade calendar keeps working in the background. Washington's 50% tariffs on roughly $20bn of Canadian goods have been in force since August 22, and Ottawa's matching duties on roughly C$27.6 billion of US products take effect September 8. 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 36% probability of a 25 basis point hike at the September 16 FOMC and a 0% probability of a cut, up from 32% on Thursday. CNBC puts market pricing near 34%, and CME FedWatch data as of August 25 implied a 58.6% probability of a hold, so the venues continue to cluster near one in three odds of a hike. The other release to watch lands at the same hour as the speech. The annual benchmark revision to US payrolls is due at 10:00am ET with consensus at minus 79K, against last year's minus 911K revision. A downward surprise on the scale of last year would hand the dovish side its first data point of the September run up and could blunt any hawkish message from the podium.

Technical Picture:

Resistance: 1.3894 is the weekly cap, set Wednesday, with Thursday's advance stalling at 1.3893. Beyond that, 1.3908 marks the mid-August top.
Support: 1.3845 is today's floor, ahead of 1.3836, the base that has held since Wednesday's breakout. Below that, 1.3782 is the August 24 low.
Outlook: The pair has coiled into a 16 pip range directly under the weekly cap. Direction now hinges on the keynote. A hawkish surprise targets a break of 1.3894 and opens 1.3908, while a framework speech with no rate signal risks unwinding the week's positioning back toward 1.3836. CIBC's tactical view still sees a move toward 1.40 as trade tensions ramp, against a 1.37 year end target.

Week Ahead:

Wednesday's Bank of Canada decision is the anchor. The meeting is priced for a hold, so the communications matter more than the rate, and any acknowledgment of tariff drag that leans dovish would land on a market that has priced no easing at all. Friday's dual employment reports are the bigger repricing risk, with the prior US print at minus 23K and last year's benchmark revision still fresh in the market's memory. Ottawa's retaliatory duties take effect the following Tuesday.

Other Notes:

• Energy markets are modestly lower and gold is little changed as traders await direction from the keynote, per CIBC, with WTI holding in the low US$80s.
• September opens Tuesday and is historically the weakest month of the year for equities. CIBC notes the seasonal drag often fails to bite when markets enter the month with momentum, with stocks finishing the final four months of the year higher in 10 of the past 11 occurrences in which August was positive and the S&P 500 was up between 10% and 17.5% year to date.