USD/CAD Market Update

Current Level: Upper-1.37s (24hr range 1.3766 to 1.3787)

USD/CAD is trading near 1.3781, up 4 pips from Tuesday's close of 1.3777, inside a 1.3766 to 1.3787 range. That is a 21 pip session, the tightest in two weeks, and it understates how much moved underneath it. Crude broke a level it has not seen since July, the front end of the US curve repriced, and Washington escalated the trade dispute again. The two forces that matter most for this pair pulled in opposite directions and cancelled out.

Market Overview:

Risk appetite is weaker. Higher energy prices are pushing bond yields up and reviving inflation concerns two days before Friday's US CPI report, per CIBC. Equity markets are softer on the combination of costlier oil and higher discount rates. The US dollar is little changed against most G10 counterparts, so this is not a broad dollar move. For USD/CAD the crude channel is doing the work again, the same pattern that has capped the pair for two weeks. Firmer oil supports the Canadian dollar directly, while the inflation impulse from energy keeps the US front end tilted toward a hike. Today those two cancel almost exactly.

Brent Breaks US$100:

Brent crude traded above US$100 a barrel for the first time since July, reaching roughly US$100.76, per CNBC and Trading Economics. The move followed a US Central Command statement that its forces destroyed five Islamic Revolutionary Guard Corps oil tankers, in retaliation for an attempted attack on a US warship that was evaded with no American casualties. CIBC notes the inflation implication is already visible in rates, with the 2 year Treasury yield at its highest since 2024 as traders add to bets on further Fed tightening, and the 10 year at its highest since 2023. The framing has shifted quickly. A month ago the market's concern was growth. Today it is inflation, and while crude stays at these levels the task facing central banks gets harder rather than easier.

US Import Restrictions on Canadian Goods:

The United States disclosed a fresh set of import restrictions on Canadian goods, largely replacing the existing 50% tariffs and due to take effect September 29, per CNBC. Separately, tariffs on other Canadian products are being modified and extended from September 15, adding all terrain vehicles and animal hides while removing rock salt and cement. This lands one day after Canada's own counter tariffs on roughly C$27.6 billion of US imports took effect. The Canadian dollar has absorbed the news without much reaction, which continues the pattern of the past two weeks. Firmer energy is the offset CIBC identifies, and that is a real support, but it is doing a lot of work. If crude retreats while the trade position hardens, the currency loses the cushion that has held it here.

Canadian Data/Outlook:

The domestic calendar is empty again this week, with no major Canadian releases scheduled. That leaves the Canadian dollar taking direction from US inflation, Treasury yields and the oil complex. Friday's August labour force survey remains the most recent domestic input, and it was weak: a loss of 42,000 positions against a consensus for a 15,000 gain, with the unemployment rate steady at 6.4%. 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, a stance that reads better today than it did a week ago. CIBC's central bank pricing now puts a 25 basis point hike at the October 28 decision at 39%, up from 36% yesterday, with no cut priced at any horizon.

Fed Watch:

CIBC's central bank monitor shows a 61% probability of a 25 basis point hike at the September 16 FOMC, up from 59% yesterday, with no cut priced. CME FedWatch was near 59% earlier this week, so the direction of travel is consistent across sources even where the level differs by a point or two. Friday's August CPI report is the last tier one input before the decision and its importance has grown with crude. CIBC economists expect 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. A firm one, arriving alongside US$100 oil, would settle the September debate in favour of a hike and lift the US dollar.

Technical Picture:

Resistance: 1.3787, today's high. Above that, 1.3822, Tuesday's high and the cap on the past three sessions.
Support: 1.3766, today's low. Below that, 1.3758, Tuesday's low and the floor for the week.
Outlook: The pair remains below its 200 day moving average, per CIBC, whose strategists hold a target of 1.4100 on the view that interest rate differentials favour the US dollar, while acknowledging that the pair needs to break higher before that view gains traction. The practical picture is a market that has spent three sessions in a 64 pip band between 1.3758 and 1.3822 and today used only a third of it. Ranges this tight ahead of a CPI print and an FOMC decision usually resolve on the data rather than on flow.

Week Ahead:

Friday's US CPI is the decisive release and carries more two sided risk than usual now that energy is climbing into the print. Thursday's ECB decision matters mainly for the updated projections, since the hike itself is fully priced. For the Canadian dollar specifically, the September 15 tariff modification and the September 29 import restrictions are the dates to diarise; neither is priced in any visible way today.

Other Notes:

• The sharper story in energy is refined products rather than crude. Refinery disruptions tied to the conflicts in the Middle East and Ukraine have created a shortage of gasoline and diesel, so fuel prices are rising faster than the barrel, per CIBC. Bank of England Governor Bailey has made the same point recently, that households buy the products rather than the crude, which is why this matters more for inflation expectations than the headline oil price suggests.
• The Japanese yen continues to outperform after comments from Treasury Secretary Bessent reinforced support for a stronger currency, per CIBC. That is the clearest directional move in G10 today, in a session where the US dollar itself is little changed.
• Long end yields remain the background pressure. The US 10 year is at its highest since 2023, and rising yields despite Treasury support suggest the market is pricing a fiscal problem rather than a liquidity one.