USD/CAD Market Update

Current Level: High-1.37s (24hr range 1.3775 to 1.3815)

USD/CAD is trading near 1.3779, down 26 pips from Monday's close of 1.3805, inside a 1.3775 to 1.3815 range. The pair opened at 1.3804 and has drifted lower through the session as a sharp rally in crude offset an escalation in the trade dispute between Ottawa and Washington. This is the fourth consecutive session in which USD/CAD has failed to hold above 1.3850, and the pair has now retraced the entire move that followed Friday's employment reports.

Market Overview:

Risk appetite is weaker to start the holiday shortened week. The US dollar is softer against most G10 counterparts, with rising energy prices reviving inflation concerns ahead of Friday's US CPI report, per CIBC. Equity markets are marginally lower as higher oil prices and elevated bond yields weigh on sentiment. For USD/CAD the crude channel is doing the work again this morning, the same pattern that has capped the pair repeatedly over the past two weeks. Firmer oil supports the Canadian dollar directly, while the inflation impulse from energy keeps the front end of the US curve tilted toward a hike, and today the commodity leg is winning.

Oil Rally on Saudi Strikes:

Brent crude for November delivery rose 2.23% to US$99.16 a barrel and WTI for October advanced 3.26% to US$94.46, per CNBC. The move follows Saudi Arabia's confirmation that operations at certain energy facilities were halted after strikes by Iran aligned Houthi militants based in Yemen, which wounded more than 70 people, per NBC News. Brent is now at its highest since late July. Goldman Sachs raised its Brent and WTI forecasts by US$5 each, to US$85 and US$80 respectively for December 2026, citing markets increasingly pricing a prolonged conflict in the region. CIBC flags oil as the largest open variable for policy from here, noting that a sustained move above US$100 would complicate the outlook for every major central bank.

Canadian Counter Tariffs Take Effect:

Canada's retaliatory tariffs on US goods took effect overnight, applying rates of between 15% and 50% to hundreds of US products including steel, consumer goods and manufactured imports, per the Globe and Mail. The package covers roughly C$27.6 billion of US imports and responds to the 50% US tariffs imposed in late August. The escalation raises uncertainty around North American trade flows, yet the Canadian dollar is stable this morning. CIBC reads that stability as evidence that investors still expect a negotiated outcome, or that the trade risk is already reflected in the price. That view has held up for two weeks now, but it is a position, not a fact, and it leaves the currency exposed if talks stay stalled into the fall.

Canadian Data/Outlook:

The domestic calendar is empty this week, with no major Canadian releases scheduled. That leaves the Canadian dollar taking its direction from US CPI, Treasury yields and broader risk sentiment. Friday's August labour force survey remains the most recent domestic input, and it was weak. Statistics Canada reported a loss of 42,000 positions against a consensus for a 15,000 gain, ending a run that added 181,000 jobs between April and July. The unemployment rate held at 6.4%. Manufacturing was the one area of strength with a 22,000 gain, while business and building support services shed 20,000, public administration 9,000 and natural resources 8,000. The Bank of Canada held at 2.25% last week for a seventh consecutive meeting and stressed the inflation risk from elevated energy prices rather than the growth risk from tariffs. CIBC's central bank pricing puts a 25 basis point hike at the October 28 decision at 36%, with no cut priced at any horizon.

Fed Watch:

CIBC's central bank monitor shows a 59% probability of a 25 basis point hike at the September 16 FOMC, with no cut priced. CME FedWatch was at 58.7% as of Monday, consistent with that reading, though the measure has been volatile and printed near 66% at the end of August. Friday's payrolls report cleared the way for the debate to be settled on inflation. The Bureau of Labor Statistics reported 162,000 jobs added in August against a consensus near 53,000, the strongest month since March, with the unemployment rate steady at 4.1% and average hourly earnings up 3.1% year over year. CIBC economists expect August headline CPI at 0.3% month over month and core at 0.2%, marginally below the 0.4% headline consensus carried in our calendar. A benign print would ease pressure on Treasury yields and support the case for a hold. An upside surprise would likely settle the September decision in favour of a hike, lift the US dollar and weigh on risk assets.

Technical Picture:

Resistance: 1.3815, today's high and the session open area. Above that, 1.3873, Friday's post payrolls high and the high for the past six sessions.
Support: 1.3775, today's low. Below that, 1.3765, the low set on September 3 and the floor of the current range.
Outlook: The pair has slipped back below its 200 day moving average, per CIBC, whose strategists remain biased toward USD/CAD upside into the September 16 FOMC while acknowledging that firmer oil and lighter bearish CAD positioning have capped gains for now. The practical picture is a range of roughly 110 pips between 1.3765 and 1.3873 that has contained trade all week. Friday's CPI report is the most likely catalyst to break it, and the direction of that break should follow the print.

Week Ahead:

Friday's US CPI is the decisive release. It is the final tier one input before the FOMC five days later, and with energy costs climbing it carries more two sided risk than usual. Thursday's ECB decision matters mainly for the updated growth and inflation forecasts, since the hike itself is fully priced. Canada's own CPI on Monday lands after the Fed decision is set but before the October 28 Bank of Canada meeting, and it is the more relevant domestic print for the local rate path.

Other Notes:

• Long end sovereign yields remain under pressure. The UK 30 year gilt reached its highest yield since the late 1990s, with investors demanding more compensation to lend to governments over long horizons as fiscal and inflation concerns persist, per Bloomberg via CIBC.
• Ten year US Treasury yields are near levels last seen in January 2025, keeping the front end of the curve sensitive to Friday's inflation print.
• Markets have fully priced Thursday's ECB hike, so the euro's reaction will hinge on the projections and on whether the Governing Council signals another move before year end.