USD/CAD Market Update

Current Level: Upper-1.41s (24hr range 1.4173 to 1.4202)

USD/CAD is trading at 1.4181 this morning, up from Monday's 1.4177 close, after reaching 1.4202 overnight. That is a seventh consecutive session of higher highs and the highest level for the pair since July. Yesterday's note flagged 1.4200 as the line separating continuation from exhaustion. The pair has now traded on the other side of it, but by only two pips, and it has not held there.

Market Overview:

Risk appetite is mixed. The global bond selloff has paused, crude has eased after Saudi Arabia restored flows through its repaired East-West pipeline, and equities are modestly higher on the back of the lower oil price, per CIBC. The US dollar remains broadly supported against the G10 basket, with CIBC describing the greenback as nearing a potential technical breakout on the charts. The mechanism has not changed in a week. US yields are setting the level, and a softer Canadian growth profile is doing nothing to resist it.

Oil Eases as the Saudi Pipeline Reopens:

Brent is trading near US$105.31 a barrel, close to unchanged on the day, after topping US$108.50 on Monday, per Trading Economics. Saudi Arabia has restored roughly 3.5 million barrels a day through the East-West pipeline following repairs to drone damage, which reopens a route around the Strait of Hormuz. Energy Connects reports Iranian officials casting doubt on any agreement to end hostilities and reopen the strait before the US midterm elections in November. CIBC reads the move as crude taking a breather rather than turning, with the broader trend still higher absent a diplomatic breakthrough. For this pair the inflation channel continues to outweigh the terms of trade channel, so cheaper oil helps the Canadian dollar mainly by taking pressure off yields.

Treasury Yields at the 2007 Ceiling:

The US 10-year yield closed at 5.24% on Monday after an intraday high of 5.274%, its highest since 2007 and two basis points below the 5.26% closing peak set in June 2007, per 24/7 Wall St. CIBC has the yield closing in on a new cycle high of 5.28%, and the 30-year is holding near 5.5%. A clean break of the 2007 peak would take the market into levels last seen in 2002. That single variable matters more for USD/CAD at the moment than anything on the Canadian calendar.

Canadian Data/Outlook:

Statistics Canada reported that GDP was flat in July, against consensus of +0.1% m/m and CIBC's own call of -0.1%. The advance estimate for August points to a 0.2% monthly gain, which leaves Q3 tracking near a 2.0% annualized pace and close to the Bank of Canada's own expectations, per CIBC. Construction rose 1.3% for a fourth consecutive monthly gain, while manufacturing, mining, quarrying and oil and gas extraction, retail and wholesale trade all declined, per BNN Bloomberg. CIBC's read is that the report is already stale. It covers the period before the breakdown in US and Canada trade relations and the subsequent tariffs and duties, so the market cares more about whether that damage shows up in jobs and inflation ahead of the October 28 decision. CIBC made no change to its FX or rates forecasts. Its Central Bank Watch now puts the odds of a 25bp BoC hike on October 28 at 52%, with a cut at 0%. Forecasters remain split: National Bank and Scotiabank look for a hike to 2.50% in October while most surveyed economists still expect a hold at the current 2.25%, per Tradingpedia. Canadian banks are closed tomorrow for the National Day for Truth and Reconciliation, so domestic liquidity will be thin into the US Core PCE print.

Fed Watch:

The FOMC raised the target range 25bp to 3.75% to 4.00% on September 16. CME FedWatch showed a 72.3% probability of a further 25bp hike at the October 28 meeting as of Monday, and CIBC's Central Bank Watch has the same meeting at 72% with a cut probability of 0%. Prediction markets sit slightly lower, with Kalshi and Polymarket near 69% this morning. Tomorrow's August Core PCE is the week's inflation checkpoint, with consensus at +0.3% m/m against +0.2% previously, alongside final Q2 GDP at 1.5% q/q. Friday's payrolls report is the main event: consensus has come down to 90K from 162K previously, the unemployment rate is expected to hold at 4.1%, and average hourly earnings are seen at +0.3% m/m. A firm inflation print locks in October. A soft payrolls number remains the most plausible near-term catalyst for a USD/CAD pullback, and it is the risk CIBC strategists point to when they argue the risk reward for further upside is less compelling than it was earlier in the month.

Technical Picture:

Resistance: 1.4202, this morning's high and the first print above the 1.4200 round figure in this advance. CIBC strategists place resistance near 1.4200, so that is the level that has to give way cleanly for the trend to extend. Above it, 1.4250 is the next round-figure objective.
Support: 1.4173, the overnight low. Below that, 1.4137 is Monday's low and the base of the last three sessions.
Outlook: Seven consecutive sessions of higher highs and a marginal break of 1.4200 that has not held. The shape is the same one Friday produced: a new high by a few pips, then a fade, on a 29 pip range. The trend is intact and nothing in the last two sessions breaks it, but the pair is grinding rather than accelerating, and it is doing so into two US prints that can settle the October question. Holding above 1.4173 keeps the break attempt alive. A close back under 1.4137 would be the first real sign the yield driven advance has run out of room.

Week Ahead:

The next 72 hours carry the week's weight. Core PCE lands tomorrow in a holiday thinned Canadian session, then ISM on Thursday and payrolls on Friday. Both the Bank of Canada and the Federal Reserve decide on October 28, so every print this week feeds the same rate differential that has carried the pair from 1.3995 on September 18 to this morning's 1.4202.

Other Notes:

• Equity market breadth is the quiet risk. CIBC cites Goldman Sachs data showing the S&P 500 sitting roughly 1% below its all-time high while the median constituent is about 16% below its own 52-week high, the weakest reading on Goldman's preferred breadth measure since the Dot-Com period. A narrow market is a fragile one, and an equity correction is the most plausible route to a broad repricing across currencies.
• Australia CPI tonight follows the RBA decision overnight. A firm print would extend the G10 tightening theme, which is part of what limits how far the US dollar can run on rate differentials alone.
• Month-end falls tomorrow, in a session where Canadian banks are shut. CIBC flagged month-end US dollar selling flows last week as a potential drag on this advance, and thinner domestic liquidity will amplify whatever those flows do.