USD/CAD Market Update

Current Level: Low-1.38s (24hr range 1.3801 to 1.3828)

USD/CAD is trading near 1.3827, up 21 pips from Wednesday's close of 1.3806, inside a 1.3801 to 1.3828 range. The pair opened at 1.3806 and has ground higher through the morning. Two events landed before the North American open. The European Central Bank delivered a second consecutive rate hike, and the Bureau of Labor Statistics reported an August producer price increase driven almost entirely by energy. Both point the same way, toward central banks staying tighter for longer, and global bond yields have followed.

Market Overview:

Risk appetite is weaker. Global yields are moving higher, with the US 10 year Treasury near 4.85%, its highest since 2023, per Trading Economics. CIBC frames that level as being within reach of 5.00%, where the arithmetic on US federal debt service starts to bind. Equity markets are under pressure, with CIBC noting the S&P 500 on track for a fourth consecutive decline as higher discount rates weigh on valuations. The US dollar is broadly firmer against G10 counterparts this morning, though the dollar index near 98.75 is still close to a seven month low, per Trading Economics. For USD/CAD the crude channel continues to do most of the work. Firmer oil supports the Canadian dollar directly, while the energy driven inflation impulse keeps the US front end tilted toward a hike.

Producer Prices Confirm the Energy Channel:

The Bureau of Labor Statistics reported final demand producer prices rose 0.4% in August, matching consensus, and 5.4% over the twelve months. The composition is the story. Final demand goods rose 1.1% while services rose 0.1%, and more than three quarters of the headline gain traced to final demand energy, which rose 4.2%. Diesel prices jumped 24.1% on the month and accounted for over a third of the goods increase. Core producer prices excluding food, energy and trade services rose 0.3% on the month and 4.7% year over year. The headline matched expectations, per CNBC, so the print does not by itself change September pricing. What it does is confirm the transmission channel behind the last two weeks of repricing. The move in crude is reaching wholesale prices quickly, and refined fuels are where it shows up first. CIBC has been making the same argument on crack spreads and diesel supply, and today's data supports it.

ECB Hikes and Lifts Its Inflation Path:

The European Central Bank raised the main refinancing rate by 25 basis points to 2.65% and the deposit rate to 2.50%, its second consecutive increase, per FXStreet. The Bank lifted its inflation forecasts, projecting headline inflation to average 3.0% this year, 2.5% in 2027 and 2.1% in 2028, and does not see inflation back at target until late 2027. Euro area inflation was 3.3% in August with energy inflation at 14.3%. President Lagarde said the Governing Council did not discuss the future rate path and would not anticipate the next move. CIBC notes markets are pricing roughly three further 25 basis point increases over that horizon, and CIBC strategists continue to treat EUR/USD dips toward the mid-1.15s as buying opportunities, with a target of 1.17. The read across for USD/CAD is indirect but real. A second major central bank raising rates while lifting its inflation profile makes the higher for longer framing harder to argue against, and that is what is pushing global yields.

Canadian Data/Outlook:

The domestic calendar is empty again today, leaving the Canadian dollar to take direction from US inflation, Treasury yields and crude. The next domestic input is Monday's August CPI report at 8:30am ET. July left the trimmed mean at 1.9% year over year and the median at 2.0%, both inside the Bank of Canada's control range, with headline prices up 0.5% on the month. The Bank held at 2.25% last week for a seventh consecutive meeting and put more weight on the inflation risk from energy than the growth risk from tariffs. CIBC's central bank monitor now prices a 25 basis point hike at the October 28 decision at 55%, up from 39% yesterday, with no cut priced at any horizon. That is a large single day move and it reflects crude, not domestic data. Canada's counter tariffs on roughly C$27.6 billion of US imports have been in effect since Tuesday and the currency has absorbed them without much reaction.

Fed Watch:

CIBC's central bank monitor shows a 70% probability of a 25 basis point hike at the September 16 FOMC, up from 61% yesterday, with no cut priced at any horizon. CME FedWatch stood at 58.7% on September 7 and has since moved above 60%, per Yahoo Finance and Forbes, so the level differs by source while the direction of travel is the same. Tomorrow's August CPI report at 8:30am ET is the last tier one input before the decision. Consensus is for headline CPI at 3.4% year over year and 0.4% on the month, with core easing to 2.4% from 2.5%. A firm print would push September pricing toward certainty. A soft core reading is the main remaining path to a hold.

Technical Picture:

Resistance: 1.3843, the September 7 high and the level that has capped every attempt higher this week. Above that, 1.3872 from September 4.
Support: 1.3801, today's low and the opening area. Below that, 1.3765 from Tuesday.
Outlook: The pair has spent four sessions inside a 1.3758 to 1.3843 band, and today's 27 pip range does not break it. CIBC strategists remain biased toward 1.4100 on rate differentials and US and Canada trade risk. That view needs a catalyst, and tomorrow's CPI report is the most likely one on the calendar.

Week Ahead:

Tomorrow's US CPI report is the single event that matters most for USD/CAD over the next week, because it settles the September FOMC debate five days before the meeting. After that the calendar is dense, with the Fed on Wednesday and the Bank of England and Bank of Japan on Thursday. Monday's Canadian CPI is the only domestic input in the window, and with the Bank of Canada not meeting until October 28 it will read as a directional signal rather than a decision input.

Other Notes:

• Brent crude is trading near US$101 a barrel after closing at US$101.21 on Wednesday, a 3.4% single session gain, per Trading Economics. Tanker traffic through the Strait of Hormuz has fallen to roughly 10 vessels a day, per Vantage Markets, on a waterway that normally carries about 20 million barrels a day.
• The US 10 year Treasury yield is near 4.85%, its highest since 2023, per Trading Economics. Fed pricing is expressed at the front end, but the long end move is what is pressuring equity valuations.
• The dollar index near 98.75 remains close to a seven month low even with the greenback firmer on the day, per Trading Economics. Today's strength is a reaction to yields, not a change in the medium term trend.