USD/CAD Market Update

Current Level: Mid-1.42s (24hr range 1.4203 to 1.4246)

USD/CAD is trading at 1.4225 this morning, essentially flat against Thursday's 1.4221 close, after a narrow 1.4203 to 1.4246 range. The pair sold off on the payrolls release and then recovered the entire move within the hour. That is the notable part of the session. The US dollar is weaker against the G10 basket, front end yields are lower, and the Canadian dollar has nothing to show for it. The pair remains within four pips of its high for this advance.

Market Overview:

Risk appetite improved sharply on the employment report, per CIBC. Equities are higher, with the Dow up 0.5%, the S&P 500 up 0.8% and the Nasdaq up 1.2%, per CNBC. Global bond markets are bidding after weeks of selling pressure. The two year Treasury yield fell three basis points to 4.758% and the ten year fell three basis points to 5.205%, per CNBC. CIBC describes the move as the first real relief for bonds in several weeks. For USD/CAD the mechanism that has set the level all month, the US to Canada rate differential, finally moved in Canada's favour this morning and produced almost nothing. That tells us positioning, not pricing, is now the binding constraint on this pair.

Payrolls Miss by the Widest Margin of the Advance:

The US economy added 29,000 jobs in September against consensus of 90,000, per CIBC and the Bureau of Labor Statistics. CIBC notes the print came in below every economist estimate in the survey and was accompanied by a sizeable downward revision to the prior two months. The unemployment rate rose to 4.2% from 4.1%, where consensus was for no change. Average hourly earnings rose 0.1% on the month against 0.3% expected, taking the annual pace to 3.0%, which CIBC calls the weakest since 2021. CIBC's read is that the report shifts attention back to growth and exposes real softness in the American labour market, while the September CPI report on October 14 will have the final say on this month's FOMC decision. The wage line is the more consequential half of this release. A Federal Reserve that has been hiking into above target inflation cares more about the 3.0% earnings pace than about one weak headline.

Oil Slips Back Under US$100:

Brent fell to US$99.68 a barrel this morning, down 2.57% on the session, per Trading Economics. CIBC attributes the decline to the softer payroll data and a weaker growth outlook offsetting the supply concerns that drove crude through US$100 earlier in the week. This is the second time in three sessions that Brent has failed to hold the level. The read for this pair stays two sided and has not changed through the advance. Cheaper crude removes a support for the Canadian dollar on the terms of trade channel, while easing the inflation expectations that have been driving yields. The second channel has been the dominant one, and today both channels pointed the same way without moving the pair.

Canadian Data/Outlook:

There is no Canadian release today. CIBC's Central Bank Watch puts the odds of a 25 basis point Bank of Canada hike on October 28 at 31%, down from 46% on Thursday, with a cut at 0%. Bond market pricing reported by Yahoo Finance Canada and rateprobability.com is materially higher, closer to 54% for a hike, so the two sets of pricing have diverged this week and the gap is worth watching. The overnight rate has been at 2.25% since the September 2 hold. Note the direction of travel: Bank of Canada hike odds have fallen faster than Fed hike odds over the past two sessions, which works against the Canadian dollar and helps explain this morning's failure to rally. The September employment report on October 9 is the next domestic input with real bearing on the decision, with consensus at a 9.5K gain after the 41.7K decline in August and the unemployment rate expected to rise to 6.5% from 6.4%.

Fed Watch:

CIBC's Central Bank Watch shows a 19% probability of a 25 basis point Fed hike on October 28, with a cut at 0%. Market pricing reported by CNBC puts the odds of a hold at roughly 83%. CIBC notes traders are now pricing 23 basis points of tightening by the December meeting, slightly under one full hike, against more than 50 basis points priced a couple of weeks ago. That is a substantial repricing of the policy path in a short window. Fed officials had already signalled patience ahead of the release, with New York Fed President John Williams saying earlier in the week there is no need for urgency. The FOMC minutes on October 7 will show how broad support for the September increase actually was, and the September CPI report on October 14 is the release that decides the October meeting.

Technical Picture:

Resistance: CIBC continues to identify 1.4250 as the make or break level and sees little above it until 1.4400, with a decisive break opening the early 2025 highs. This morning's 1.4246 high is the fourth approach to that level this week without a close through it.
Support: 1.4203 is this morning's low and the first line. Below it, 1.4200 has held as support since Wednesday's break. Tuesday's low at 1.4154 remains the level that would signal the advance is unwinding rather than consolidating.
Outlook: A 1.4203 to 1.4246 range on a tier one data surprise is a tight range, and the pair absorbing a dovish US print without breaking down is a constructive sign for the advance rather than a neutral one. CIBC strategists favour USD/CAD lower from here, arguing the risk reward for further upside is far less compelling than it was a month ago and that a softer US growth backdrop should support the Canadian dollar. The price action is not confirming that yet. Until 1.4200 gives way on a close, treat 1.4250 as the level that decides direction, with 1.4400 the objective on a break.

Week Ahead:

Canadian employment on October 9 and US CPI on October 14 are the two releases that will set the tone into the October 28 decisions. Both central banks meet the same day, so the differential is live on two fronts at once. The FOMC minutes on October 7 are a secondary read on how contested the September hike was.

Other Notes:

• Nike shares fell roughly 8% after soft earnings and a restructuring plan, leaving the stock down more than 40% year to date, per CIBC and Google Finance. CIBC treats it as a case study in how fast retail leadership unwinds when growth stalls.
• The ten year Treasury yield at 5.205% is still near its highest level since 2002 despite this morning's rally. One soft labour print has not changed the structural picture in bonds, and that picture is what has carried this pair to 1.4250.