USD/CAD Market Update

Current Level: Mid-1.42s (24hr range 1.4210 to 1.4281)

USD/CAD is trading at 1.4260 this morning, up 47 points from yesterday's 1.4213 close, after a 1.4210 to 1.4281 range. Tuesday's consolidation has resolved higher. The driver is the same one that has set this pair all month: global bond yields are back at cycle highs, the US dollar is bid across the G10 basket, and the Canadian dollar is getting no help from a crude complex that is itself moving higher. The September FOMC minutes land at 2:00pm ET, and both the bank commentary and the pricing suggest they are a non event.

Market Overview:

Risk appetite is softer this morning, per CIBC, with higher oil prices and rising bond yields weighing on equities after the S&P 500 closed at a fresh all time high yesterday. Tech and semiconductor names are leading the pullback as investors debate whether earnings growth can keep absorbing higher interest rates. The US dollar is stronger against the G10 basket on the move up in Treasury yields. CIBC's framing is that until rates stabilise, little else is likely to matter, and that holds for this pair specifically. The euro remains the weak leg of the dollar index, trading near a 17 month low, with the French to German 10 year spread having reached roughly 152 basis points on October 2, a level last seen during the euro area debt crisis, according to market reporting.

The Bond Grind Resumes:

Global bond markets are back under pressure, with yields at cycle highs across most developed markets. CIBC has the US 10 year Treasury yield at a fresh cycle high of 5.36%, up roughly 100 basis points since July and the highest since 2002. Trading Economics recorded the 24 year high at 5.342% on October 1, so this morning's print extends rather than retests that move. The drivers have not changed: elevated energy prices, rising inflation expectations and government deficit concerns. The Canadian detail matters more than usual today. CIBC notes the Canadian 2 year yield is at one of its widest spreads to the overnight rate this cycle, which is the market saying policymakers have not done enough to contain inflation. The bank's read is that the market is effectively pricing a higher policy rate than the Bank of Canada is delivering, and that historically such a gap does not stay open indefinitely. For a hedger, that is a two sided risk rather than a directional one: the gap closes either because the Bank validates it or because the market gives it up.

Oil Higher, Canadian Dollar Unmoved:

WTI crude is back above US$90 a barrel on renewed supply concerns around the Strait of Hormuz, per CIBC. Reuters reporting through September documented tit for tat strikes on vessels transiting the strait keeping Middle East crude flows low, with Brent above $97 and WTI near $92 at the time, and Goldman Sachs flagging a path to $120 if attacks on shipping escalate. The point for this pair is what is not happening. A commodity currency facing a sustained energy price shock should be appreciating, and USD/CAD is 47 points higher instead. That is the third session in two weeks where the crude leg and the currency have disconnected, and it is the clearest evidence available that this advance is a US rates story with Canada as a passenger.

US Trade Deficit Widens to a Post Tariff High:

Yesterday's August trade report showed the goods deficit widening to $132.6bn from $118.9bn in July, against expectations of roughly $115bn, per Census Bureau and Bureau of Economic Analysis data. That is the largest gap since March 2025. Imports rose 5.5% to $336.1bn while exports gained 1.9% to $203.4bn. Tariffs have raised the cost of imports without reducing the volume of them, and the country ran near record goods deficits with several partners including Canada and Mexico. The medium term implication for the dollar runs the other way from today's price action. A deficit of this size has to be financed by foreign purchases of US assets, and the marginal foreign buyer is already heavily allocated to American equities and Treasuries. That argues for a weaker dollar over a horizon longer than a few months, which is a useful counterweight for anyone tempted to extrapolate the current trend.

Canadian Data/Outlook:

There is no Canadian release today. CIBC's Central Bank Watch now puts the odds of a 25 basis point Bank of Canada hike on October 28 at 34%, with a cut at 0%, up from 33% yesterday and down from 36% on Monday. Those odds have oscillated in a narrow band all week while the 2 year yield has pushed wider, which is the tension described above. Friday's September employment report is the domestic event of the week, at 8:30am ET. Our calendar carries consensus at a 6.3K employment gain with the unemployment rate expected to rise to 6.5% from 6.4%, following August's 41.7K decline. Statistics Canada confirms the release time. A second consecutive weak print would be the first genuine domestic argument for a softer Canadian dollar in this advance, and it would also widen the gap between what the market is pricing for the Bank and what the labour data can justify.

Fed Watch:

CIBC's Central Bank Watch shows a 22% probability of a 25 basis point Fed hike on October 28, with a cut at 0%, in line with the 22% carried on Monday and little changed from 20% yesterday. The September FOMC minutes are released at 2:00pm ET and cover the quarter point increase, the first since 2023. Expect a hawkish record. CIBC does not expect it to matter much, on the basis that investors are far more concerned with the daily price action in bond yields and crude oil, and the softer inflation and jobs data that have landed since the meeting have already overtaken the discussion. Further out, prediction market pricing compiled on September 30 put the odds of a hike by December near 74% across Kalshi and Polymarket, down from 76% the day before. Next Wednesday's September CPI report at 8:30am ET is the release that decides the October meeting.

Technical Picture:

Resistance: 1.4281 is this morning's high and the first line. Above it, 1.4287 was yesterday's high and 1.4294 is Monday's cycle high and the strongest print since April 2025. Through there the market has little recent reference until the 1.4400 round figure.
Support: 1.4210 is the overnight low. Below that, 1.4206 has now held three times in four sessions and is the level that defines this range, with 1.4154, the September 30 low, the next reference beneath it.
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 view is now into its second week without validation. What today adds is a cleaner read on the range. Three sessions have produced lower highs, 1.4294 then 1.4287 then 1.4281, against a floor that has not given way below 1.4206. That is a contracting range near the top of the move, which typically resolves on a catalyst rather than on drift. Friday's jobs report and next Wednesday's CPI are the two candidates on the calendar.

Week Ahead:

The calendar is thin until Friday and then dense. Friday's Canadian employment report is the first domestic input with the capacity to move this pair in a month, and next Wednesday's US CPI is the release that sets the October 28 Fed decision and, by extension, the yield path that has been driving USD/CAD. Hedgers with October or November exposures should treat those two dates as the window where the current range either breaks or fails.

Other Notes:

• Equity markets are lower this morning with tech and semiconductors leading, after the S&P 500 set a record close on Tuesday. CIBC's read is that every move higher in yields raises the bar for earnings.
• French fiscal risk is still the active pressure point in Europe, with market reporting putting the French to German 10 year spread near 152 basis points on October 2 and rising French risk premia beginning to lift other euro area sovereign spreads. A weak euro is a mechanical support for the trade weighted dollar.
• Bank of Canada and Federal Reserve decisions both fall on October 28, so the two rate events that matter most for this pair land on the same day.