USD/CAD Market Update

Current Level: Mid-1.41s (24hr range 1.4148 to 1.4174)

Risk appetite is weaker to start the week. President Trump rejected Iran's proposal to reopen the Strait of Hormuz and resume talks, sending crude higher and adding fresh fuel to a global government bond selloff that has run all month. USD/CAD opened the week bid and traded up to 1.4174, extending a grind higher that has added roughly 160 points since September 21, when the pair was trading near 1.4006.

Market Overview:

Bond markets remain under heavy pressure, with US Treasury yields at fresh cycle highs as higher energy prices reignite inflation concerns. CIBC notes that rates are back to pre-GFC levels and that the path of least resistance for yields still looks higher. Equities are softer on the combination of higher yields and higher oil. For USD/CAD the notable feature is the decoupling: a 2% to 3% move higher in crude would normally lend the Canadian dollar support, but widening US to Canada rate differentials are dominating the price action.

Oil and the Iran Standoff:

Front-month Brent gained 2.89% to $107.34 a barrel and US crude for November delivery rose 1.87% to $94.14, per CNBC. The move followed Trump's weekend rejection of Tehran's offer, which had tied reopening the Strait of Hormuz and resuming nuclear talks to conditions including lifting the naval blockade and unfreezing Iranian assets. CIBC calls oil the dominant macro story and has WTI pushing back toward US$95. The inflation channel matters more for this market than the terms-of-trade channel right now, which is why a crude rally is reading as CAD-negative rather than CAD-positive.

Bond Market Repricing:

The 10-year Treasury yield reached 5.19% on September 25, its highest since 2007, and Treasuries are under pressure again this morning, per Axios and CNBC. CIBC has the market pricing roughly three Fed hikes in total by March 2027. The repricing is what has driven the dollar leg of this move, and it is the reason a weaker Canadian growth profile is translating so directly into a higher USD/CAD.

Canadian Data/Outlook:

Tomorrow's July GDP report is the key domestic release of the week. Consensus looks for +0.1% m/m, while CIBC economists expect -0.1% m/m, which would suggest the economy started Q3 on a softer footing than markets expect. Statistics Canada's earlier flash estimate had pointed to essentially no output growth in July, before the latest round of American tariffs took effect. BoC Deputy Governor Gravelle speaks Tuesday and Senior Deputy Governor Rogers speaks Thursday, and any commentary on inflation or growth will attract attention. CIBC's Central Bank Watch puts the odds of a 25bp BoC hike on October 28 at 54%, with a cut at 0%. Canadian banks are closed Wednesday, September 30 for the National Day for Truth and Reconciliation, so expect thinner domestic liquidity into the US Core PCE print that morning.

Fed Watch:

The FOMC raised the target range 25bp to 3.75% to 4.00% on September 16, its first increase since 2023. CME FedWatch shows a 72.3% probability of a further 25bp hike at the October 28 meeting as of this morning, with CIBC's own read at 69% and a cut probability of 0%. Wednesday's Core PCE release is the week's inflation checkpoint, with CIBC expecting the annual rate to hold at 3.3% against the 2.0% target and our calendar showing consensus at +0.3% m/m. Friday's payrolls report is the main event: consensus is near 98K to 100K, CIBC economists look for 80K, and the unemployment rate is expected to hold at 4.1%. A hotter inflation print would reinforce the higher-for-longer narrative and support the dollar. A soft payrolls number is the most plausible near-term catalyst for a USD/CAD pullback.

Technical Picture:

Resistance: 1.4174, this morning's high and the top of the current move. Above that, 1.4200 is the next round-figure objective and has capped every session this month.
Support: 1.4148, the overnight low. Below that, 1.4133 marks Friday's base and the shelf the pair has built over the past three sessions.
Outlook: The trend is intact and the pair has closed higher in each of the last five sessions, but the risk-reward for chasing it has deteriorated. CIBC strategists argue the recent uptrend could reverse somewhat this week, pointing to downside risks around Friday's payrolls report and month-end USD selling flows, and they note USD/CAD has now closed its undervaluation gap. CIBC's economists also see limited additional upside for the dollar from current levels, with much of the post-Jackson Hole and post-Fed rally already played out. Treat 1.4200 as the line that separates continuation from exhaustion.

Week Ahead:

The week is front-loaded for CAD and back-loaded for USD. Canadian GDP tomorrow morning sets the tone for BoC October pricing, then attention shifts to Wednesday's Core PCE and Friday's payrolls. Both October 28 central bank decisions fall on the same day, so every print this week feeds directly into the rate differential that is driving the pair.

Other Notes:

• Oil is a swing factor in Canadian rate pricing as much as in US inflation pricing. If crude holds above US$95, BoC October hike odds are likely to follow it higher, which would partially offset the differential story.
• Month-end falls on Wednesday. CIBC flags month-end USD selling flows as a potential drag on the recent uptrend, and those flows land in a holiday-thinned Canadian session.
• The RBA decision overnight is expected to deliver a hike to 4.60%. A tightening bias across the G10 is now the norm rather than the exception, which limits how far the dollar can extend on rate differentials alone.