USD/CAD Market Update

Current Level: Mid-1.41s (24hr range 1.4133 to 1.4154)

USD/CAD is trading at 1.4137 this morning, down from Thursday's 1.4148 close, after setting a marginal new high at 1.4154 overnight. That is a seventh consecutive session of higher highs, but the pair has slipped back into the middle of its range and is on track for its first lower close after six advances. The change in tone came from oil. The pullback in crude has stopped the bond selloff for the first time this week, and a softer US dollar is offsetting the pressure that elevated Treasury yields had been putting on the Canadian dollar.

Market Overview:

CIBC describes firmer risk appetite this morning, with easing oil prices providing relief after the sustained rise in global bond yields. Equities are extending gains and technology is leading. The US dollar is softer across the majors, with the Japanese yen the strongest G10 currency after Japanese officials renewed their warnings about currency weakness. The sequence CIBC lays out is the one to hold onto for this pair: oil is driving bond yields, yields are driving the dollar, and the dollar is driving everything else. When the first link in that chain weakens, as it has today, the Canadian dollar gets relief from the rates channel even while it loses the commodity support that normally helps it.

Hormuz Diplomacy Pulls Crude Lower:

Reuters reported that US and Iranian negotiators meeting in New York are exploring a phased path out of the conflict, under which Tehran would reopen the Strait of Hormuz in exchange for Washington lifting its naval and economic blockade. Qatari officials are mediating. Brent fell 1.4% to US$105.11 per barrel and West Texas Intermediate dropped 2.1% to US$92.61, according to Reuters coverage of Friday's session. Nothing has been agreed. The two sides reached a similar understanding under a June 17 memorandum that collapsed back into fighting within weeks, and CNBC notes the talks are running alongside renewed concern about attacks on Saudi infrastructure. For USD/CAD the read is two sided. Cheaper crude removes a pillar of support for the Canadian dollar, but it also takes the pressure off global inflation expectations, and today that second effect is the larger one.

Bond Selloff Takes a Breather:

The US 10 year Treasury yield is little changed at 5.17%, after jumping more than 10 basis points on Thursday to as high as 5.223%, the highest since June 2007, according to Invezz and Trading Economics. The 30 year is flat at 5.463% after reaching levels last seen in 2004, and the two year holds at 4.899%. The pause is broad. Japanese government bonds, UK gilts and German bunds all set fresh highs earlier in the week, and euro area and Japanese yields edged lower on Friday. CIBC reads this as a breather rather than a turning point, with the debate over fiscal deficits, heavy Treasury issuance and a resilient US economy unresolved. That matters for USD/CAD because the advance from 1.3995 on September 18 has been built on the rate differential, not on Canadian fundamentals.

Canadian Data/Outlook:

There is no Canadian release today. Thursday's July retail sales fell 0.7% against consensus of -0.8%, close enough to expectations that it did not shift the Bank of Canada calculus, though volumes fell 1.1% and eight of nine subsectors declined. The October 28 decision remains close to a coin flip. CIBC's Central Bank Watch puts the probability of a 25 basis point hike at 51%, with no cut priced, and overnight index swap pricing implied roughly 50% from the current 2.25% overnight rate as of mid September per money.ca. Advisor.ca reports that several bank economists expect the Bank to hold for the rest of 2026 and move in the first quarter of 2027, so market pricing is running ahead of the published forecasts. CIBC strategists continue to favour USD/CAD upside into year end while noting the scope for further gains is narrowing, and are pointing corporate clients toward starting Cal-27 hedging work at current levels. For exporters holding US dollar receivables, that is the practical message from this week: the trend is still higher, but the risk reward on adding at these levels is no longer what it was at 1.3995.

Fed Watch:

Pricing for an October hike has firmed further. CNBC reports CME FedWatch odds of a 25 basis point increase at the October 27 and 28 meeting at 73%, based on 30 day fed funds futures, with a 73.5% reading as of September 24. CIBC's own Central Bank Watch shows 60% for the same meeting. No cut is priced anywhere in the visible curve. August durable goods orders are due at 8:30am ET this morning, with consensus at -0.3% against a prior reading of 1.1%, a second tier print that is unlikely to move pricing on its own. The real tests are next Wednesday's core PCE and the September employment report on October 2. A firm inflation print would lock in October and begin pulling December into the conversation.

Technical Picture:

Resistance: 1.4154, this morning's high and the top of the advance. Above that there is little structure until 1.4200.
Support: 1.4133, the overnight low. Below that, 1.4088 is Thursday's low and 1.4057 is Wednesday's.
Outlook: The uptrend is intact but this is the first session that has shown hesitation. The pair made a new high by only three pips, then gave it back, and the 21 pip range is the narrowest of the move. Holding above 1.4133 keeps 1.4200 in view. A close below 1.4088 would be the first real signal that the yield driven advance is pausing, and a return under 1.4057 would end it.

Week Ahead:

Core PCE on Wednesday is the single most important release for this pair over the next two weeks, with payrolls on October 2 close behind. Consensus looks for core PCE to accelerate to 0.3% from 0.2%, which would confirm the input cost pressure the September flash surveys flagged and support the October hike now priced at better than seven in ten. Payrolls consensus of 100K is a marked slowdown from 162K, and a soft print there is the most plausible source of a pullback in USD/CAD. Both the Bank of Canada and the Federal Reserve decide on October 28, beyond this window, so the two policy events land on the same day.

Other Notes:

• Intervention risk is back in the yen. Bloomberg reports the currency weakened past 158 per dollar on Thursday and is within reach of 160, a level it describes as a political line in the sand, with the Bank of Japan having run a rate check with market participants last week. A move to defend the yen would be a broad dollar event, not a yen only one.
• Brent is trading more than US$12 above West Texas Intermediate, an unusually wide spread that reflects the premium on seaborne barrels while the strait is closed. A phased reopening would compress it.
• CIBC reports gold bulls defending the US$4,250 per ounce support zone, caught between the fiscal deficit narrative and the rise in global yields. Equity leadership also remains narrow, with the Nasdaq 100 ahead of the equal weight S&P 500 by more than 7 percentage points this month.