USD/CAD Market Update

Current Level: Mid-1.42s (24hr range 1.4232 to 1.4259)

USD/CAD is trading at 1.4251 this morning, up from Wednesday's 1.4236 close, after a 1.4232 to 1.4259 range. Yesterday's pullback on the soft US inflation report did not last. The pair bottomed at 1.4154, one pip under the support flagged in yesterday's note, then rallied more than 80 points into the close as Treasury yields turned higher again. The 1.4200 level that capped the pair on Monday and Tuesday has now given way, and this morning's high of 1.4259 is the highest print of the move.

Market Overview:

Risk appetite is cautious after another volatile session in bond and energy markets, per CIBC. The US dollar is firmer against the G10 basket for a fourth consecutive session as investors position for Friday's payrolls report. CIBC notes the dollar index is approaching 102, and a close above that level would be its highest since early 2025 and would confirm a technical breakout. Equities are mixed, with the major indices near record highs on strength in technology shares. For USD/CAD the driver is unchanged. US yields are setting the level, and Wednesday's softer inflation data proved too little to interrupt that for more than a few hours.

Bond Selloff Reaches 2002 Levels:

The US 10 year Treasury yield rose as high as 5.342% this morning, surpassing its 2007 peak and reaching its highest level since early 2002, per CNBC and Reuters. Bloomberg attributes the move to persistent inflation, heavy government borrowing and strong economic growth keeping interest rate expectations elevated. The selloff resumed despite the August core PCE reading of 3.0% against 3.3% expected. CIBC points out that the Federal Reserve's preferred inflation measure is still a full percentage point above target and has been above 2.0% for more than five years. The bank also notes that yields at these levels have not yet produced visible stress, while cautioning that tightening works with a lag.

Oil Tests US$100 Again:

Brent briefly traded above US$100 a barrel overnight before giving back gains, per CIBC, which continues to describe oil as the dominant macro story. CNBC tied the overnight rally to reports that Chinese refiners have banned fuel exports for October. Trading Economics later showed Brent back near US$96.76, down 1.3% on the day. The swings matter for this pair mainly through inflation expectations and yields. Higher crude has not translated into Canadian dollar support at any point in this advance.

Canadian Data/Outlook:

There is no major Canadian release today, and domestic markets have reopened after Wednesday's holiday. CIBC's Central Bank Watch puts the odds of a 25 basis point Bank of Canada hike on October 28 at 46%, down from 52% on Tuesday, with a cut at 0%. Money.ca describes the decision as close to a coin flip between a hold and a first increase. Bank of Canada hike odds have eased alongside Fed pricing this week, so the rate differential has not moved in Canada's favour. The September employment report on October 9 is the next domestic release with real bearing on the decision. It follows a 41.7K decline in the prior month.

Fed Watch:

CIBC's Central Bank Watch shows a 35% probability of a 25 basis point Fed hike at the October 28 meeting, with a cut at 0%. Reporting on CME FedWatch shows those odds fell from 67% to about 34% after the PCE release. Goldman Sachs has moved its forecast for the next hike to December, per Reuters. Labour data is now the deciding input. ADP reported private payrolls up 90,000 in September against consensus of 68,000 and 36,000 the prior month, per CNBC. Friday's payrolls report carries consensus near 89K after 162K in August, with the unemployment rate expected to hold at 4.1%. CIBC frames the release as decisive in both directions. A strong print would reinforce the view that the US economy remains resilient despite higher rates, while a softer number could give bonds some relief.

Technical Picture:

Resistance: 1.4259 is this morning's high and the top of the move. CIBC identifies 1.4250 as the pivotal level and sees little resistance above it until 1.4400, with a confirmed break opening the early 2025 highs.
Support: 1.4232 is the overnight low. Below it, 1.4200 capped the pair on Monday and Tuesday and should now act as support. Wednesday's low at 1.4154 is the level that would signal the advance is unwinding.
Outlook: Yesterday's note treated two failures at 1.4200 as a credible sign of exhaustion, and asked for a close below 1.4137 as confirmation. That confirmation never came. The pair held 1.4154, reversed and closed through 1.4200 instead, so the trend remains intact. The pair is trading at 1.4250 but has not confirmed a break, and CIBC strategists see the risk reward for further upside as far less compelling than it was last month. A daily close above 1.4250 is the signal for continuation. A failure here into a soft payrolls number is the most plausible path back toward 1.4200.

Week Ahead:

Friday's payrolls report decides whether 1.4250 breaks or holds. A consensus print of 89K would be a clear step down from 162K, although the ADP result has raised the bar for a downside surprise. A strong number puts the October 28 Fed meeting back in play and leaves little on the chart before 1.4400. The FOMC minutes on October 7 will show how broad the support for the September increase was, and the Canadian employment report on October 9 is the first domestic input into the Bank of Canada decision.

Other Notes:

• Micron reported very strong earnings on demand for AI infrastructure, yet the shares opened lower, per CIBC. The bank reads that as a sign that much of the good news is already in the price, which matters with the major indices near record highs.
• CIBC warns that a decisive break above 102 in the dollar index would raise the risk of a broader US dollar squeeze across G10 and emerging market currencies. That would carry USD/CAD with it regardless of Canadian fundamentals.