USD/CAD Market Update

Current Level: Mid-1.42s (24hr range 1.4244 to 1.4285)

USD/CAD is trading at 1.4249 this morning, down from Monday's 1.4264 close, after a 1.4244 to 1.4285 range. The session is risk positive on every measure except oil. Equity indices are at fresh all-time highs, global bonds are catching a bid for the first time in weeks, and the dollar is softer across the G10 basket. That combination has produced a 15 point decline in this pair. The pattern from Friday has repeated: the Canadian dollar is not converting favourable inputs, and the reason this time is visible in the crude complex.

Market Overview:

Risk appetite is supported this morning, per CIBC, with the Nasdaq and S&P 500 trading to fresh all-time highs as investors stay focused on earnings growth and AI capital spending rather than on macro headwinds. CIBC describes the start of the day as quiet, with no major economic releases and no new geopolitical developments. The US dollar is modestly weaker against the G10 basket as Treasury yields edge lower and investors rotate back into risk assets. For USD/CAD the mechanism is unchanged from last week. US yields have set the level all month, and when they ease the pair drifts rather than falls, because the move lower in yields has been accompanied by a move lower in oil.

Bond Markets Pause Without Calling a Bottom:

Global bond markets are catching a slight bid this morning as oil retreats and investors take a breather following one of the worst selloffs in decades, per CIBC. Long end Treasury yields are still hovering near their highest levels since 2002 despite the overnight pullback, having eased to around 5.24% on October 1 after reaching the mid-5.3s in late September. Treasury Secretary Scott Bessent attempted to reassure investors that a combination of economic growth and spending restraint will eventually improve the US fiscal outlook. CIBC reports investors are unconvinced, with many arguing deficit reduction remains a hope rather than an actionable plan, and the bank's own view is that few are willing to call a bottom in bonds while deficits, structurally elevated inflation and a higher for longer rate regime are all unresolved. A pause in the yield grind is not the same as a reversal, and this pair needs the second one to break lower.

Services Activity Softens While Price Pressures Hold:

Monday's ISM Services PMI for September was the only tier one release of the week so far, and it came in at 50.0 against 51.6 expected in the Econoday survey, down from 52.0 in August, per CME Group. A reading of 50.0 leaves the sector just holding growth, with weakness concentrated in business activity and employment. The price line did not cooperate. Continuum Economics reports the Prices Paid index at 69.4, up from 69.2 in August and close to July's 69.9, which was the firmest since October 2022. That split is the problem for anyone hoping the Fed is done. Activity is cooling, cost pressures are not, and a central bank that has been tightening into above target inflation will weight the second half of that report more heavily than the first.

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 33%, with a cut at 0%, down from 36% on Monday and up from 31% on Friday. The Bank has been on hold since its September decision. Friday's September employment report is the domestic event of the week. Our calendar carries consensus at a 6.2K gain, with the unemployment rate expected to rise to 6.5% from 6.4%, following the 41.7K decline in August. Note that consensus has been revised down through the week, from 9.0K on Monday, so the bar for a downside surprise has fallen with it. A second consecutive weak print would be the first genuine domestic argument for a softer Canadian dollar in this advance, since everything to date has been a US rates story.

Fed Watch:

CIBC's Central Bank Watch shows a 20% probability of a 25 basis point Fed hike on October 28, with a cut at 0%, little changed from 22% on Monday and 19% on Friday. Pricing for this month has settled, and the decision point has moved out. Reporting on CME FedWatch through late September showed the December meeting as the more likely venue for the next increase, with those odds in the high 60s to low 70s before Friday's payrolls miss took some of that out. Wednesday's FOMC minutes cover the September meeting and its quarter point increase, so the hawkish tone in that record is likely to be discounted given the payrolls and ISM data that have landed since. Next Wednesday's September CPI report is the release that decides the October meeting, and this morning's firm services price reading raises the stakes on it.

Technical Picture:

Resistance: 1.4285 is this morning's high and the first line. Above it, 1.4294 is Monday's high and the strongest print since April 2025, and a break through there leaves little recent reference until the 1.4400 round figure.
Support: 1.4244 is the overnight low and the base of today's range. Below that, 1.4206 was Friday's low, and 1.4154 is the September 30 low that would signal the advance is unwinding rather than consolidating.
Outlook: CIBC strategists continue to view the pair as increasingly stretched, noting that while the broader dollar backdrop remains constructive, USD/CAD has moved above model fair value and further upside may become harder to achieve. That is the same view the bank has carried for a week and the pair has yet to validate it. The useful detail today is the shape of the range. A 41 point range on a session this risk positive, with a lower high and a higher low than Monday, reads as consolidation just under the cycle high rather than as a turn. Treat 1.4294 as the level that decides direction into Friday's jobs report, and 1.4206 as the first evidence that the advance is losing its grip.

Week Ahead:

Nothing on today's or tomorrow's calendar is likely to move this pair on its own. Friday's Canadian employment report is the first release that can, and next Wednesday's US CPI is the one that sets the tone into the October 28 decisions, which both central banks take on the same day. Hedgers with exposure through mid October should be treating CPI, not the jobs report, as the event that matters.

Other Notes:

• Oil is lower again. CIBC reports WTI crude falling below US$88 a barrel this morning as concerns around supply disruptions ease. Crude has now fallen for three consecutive sessions, from above US$90 on Monday, and that is the single clearest reason the Canadian dollar failed to gain on a risk positive day.
• Equity breadth remains poor even at record index levels, per CIBC, with the heavyweights doing the lifting. The bank's read is that this persists as long as earnings hold up and AI capital spending stays intact. A reversal in that leadership would be a risk off event for commodity currencies, so the record highs are less reassuring than they look.
• With the pair consolidating just under its cycle high and two tier one catalysts inside eight sessions, working orders near 1.4294 and 1.4206 are worth more than a view this week. Option premiums have been repricing alongside the move in rates, so protection bought before a catalyst costs less than protection bought after one.