USD/CAD Market Update

Current Level: Mid-1.42s (24hr range 1.4236 to 1.4283)

USD/CAD is trading at 1.4236 this morning, down 45 points from Monday's 1.4281 close, after a 1.4236 to 1.4283 range. The pair is sitting on the low of the session. This is a broad US dollar move rather than a Canadian one. The dollar index slipped 0.30% to 102.26 after touching 102.61 on Monday, its highest level since April 2025, per Reuters. US bond markets reopened after the Columbus Day holiday with yields lower, and that has set the tone heading into tomorrow's inflation data.

Market Overview:

Risk appetite is fragile. A selloff in semiconductor shares that began in the US on Monday spread to Asian and European markets today, per CNBC. The trigger was Chinese memory maker CXMT, which said it had made key progress on a denser chip design and plans to launch server products by year end. The Philadelphia Semiconductor Index fell 2.67% on Monday, per BigGo Finance, and Samsung and SK hynix were down more than 6% and 9% respectively at one point in Seoul trading, according to Korea JoongAng Daily. CXMT has published no detailed specifications and has nothing shipping yet, which has left some analysts reading the drop as wider unease about the AI trade. A technology selloff of this size would usually draw some safe haven demand into the US dollar. That has not happened today. Lower Treasury yields and softer oil are setting the direction instead, and the euro is firmer at about 1.1190.

Treasury Yields Pull Back From Cycle Highs:

The US 10 year Treasury yield fell more than 4 basis points to about 5.20% as the bond market reopened, per CNBC. The 30 year is near 5.55% and the 2 year is little changed at about 4.80%. That leaves the 10 year roughly 16 basis points below the 5.36% cycle high reported last Wednesday. CNBC tied the decline to lower energy prices and the prospect of more Russian diesel reaching global markets. The pattern of the past month holds. When long end yields ease, USD/CAD gives back ground, and when they push to new highs, the pair follows. The front end is a different story. The US 2 year sits near 4.80% against roughly 3.18% for the Canadian 2 year, per FXStreet, so the spread that underpins this pair has not narrowed. Today's move is a pause at the long end, not a change in the policy gap.

Oil Eases on Russian Diesel, Middle East Risk Unresolved:

Brent crude is down about 1% to roughly US$105 a barrel, with WTI near US$92, per CNBC, after a three session rally. The relief comes from Washington. On October 9 the US Treasury's Office of Foreign Assets Control issued General License 135, which temporarily authorises transactions in Russian origin diesel through April 7, 2027. Some US lawmakers have argued the licence conflicts with US law restricting Russian energy imports. The Russia and Ukraine energy ceasefire announced by President Trump on Sunday has not been confirmed by Moscow, per NBC News. Middle East supply risk is unchanged. A Houthi attack on Riyadh's main international airport over the weekend reportedly killed 13 people, and tanker strikes near the Strait of Hormuz continue, per OilPrice.com. Saudi Arabia's energy minister said flows on the East West pipeline have recovered to 5.8 million barrels a day. For USD/CAD, the notable point is that the pair fell today while crude fell. The Canadian dollar is tracking US rates and the broad dollar rather than oil, which is the same disconnect flagged repeatedly in recent notes.

Canadian Data/Outlook:

There is no Canadian release today. The domestic backdrop is still set by Friday's September employment report, which showed a 68,300 job decline against expectations for a small gain, with the unemployment rate rising to 6.5% from 6.4%. LSEG data put the odds of a 25 basis point Bank of Canada hike on October 28 at roughly 25% after the release, down from about 40% before it, per The Canadian Press. The policy rate stands at 2.25%. TD Securities expects the Bank to hold at that level through the rest of 2026, arguing it can stay patient unless higher oil prices spread into underlying inflation, per FXStreet. September CPI on Monday, October 19 is the last major domestic input before the decision. August's headline index fell 0.1% month over month, with CPI median at 2.0% and CPI trim at 1.9% year over year, so core measures are sitting at the 2% target. A firm print would revive hike pricing and support the Canadian dollar. A soft one would leave the Bank little reason to move and keep the policy gap wide.

Fed Watch:

CME FedWatch pricing compiled on October 12 shows roughly an 80% probability that the Fed holds the funds rate at 3.75% to 4.00% on October 28, leaving about a 20% chance of a further 25 basis point hike and no cut priced. Kalshi and Polymarket pricing is consistent at about 18% for a hike. Further out, FedWatch shows about an 85% probability of a hike by December, per FXStreet. Tomorrow's September CPI report at 8:30am ET is the release that tests that pricing. Consensus is for headline CPI to rise 0.6% month over month and 3.6% year over year, up from 3.4%, with core at 0.2% and 2.5%. The Cleveland Fed nowcast is close to consensus at 0.53% and 3.60%. Continuum Economics expects energy prices to have risen about 5.5% in the month, which accounts for the gap between headline and core. FXStreet's read is that a stronger than expected print could revive bets on an October hike, while a softer one would strengthen the case for waiting until December. Fed Chair Warsh speaks at the IMF and World Bank annual meetings late Thursday.

Technical Picture:

Resistance: 1.4283 is the overnight high and the first line, with Monday's 1.4289 just above. Friday's post employment high at 1.4299 is the cycle peak and the strongest level since April 2025. Together with the 1.4300 figure it caps the range, and above there the market has little recent reference until 1.4400.
Support: 1.4236 is this morning's low and the current price. Below it, the 1.4205 to 1.4206 zone has held as the range floor four times since October 2, most recently on Friday, and is the level that matters. 1.4154, the September 30 low, is the next reference beneath.
Outlook: Every session since October 2 has traded inside a 1.4205 to 1.4299 band. Today's move takes the pair back into the lower half of that range on softer yields rather than on Canadian news. Tradingpedia's technical read treats the range as a pause in an uptrend rather than a reversal, with a break above 1.4300 needed to confirm an extension and a clear break below 1.4200 needed for a deeper correction. That frames tomorrow well. A hot core CPI print targets 1.4300, while a soft one opens a test of 1.4205.

Week Ahead:

Tomorrow's US CPI is the main event and the most likely trigger for a break of the 1.42 to 1.43 range. Thursday's PPI and retail sales are a second US test, with retail spending expected to slow sharply from August's 1.2% gain. Canadian CPI on October 19 then sets up the October 28 decisions, where the Fed and the Bank of Canada announce on the same day, just beyond this two week window. Hedgers with exposure through month end face both inflation reports and both rate decisions inside the next eleven sessions.

Other Notes:

• US diesel is at US$6.26 a gallon, nearly 80% above its level at the start of the year, according to AAA. That is the energy input behind tomorrow's elevated headline CPI forecast, and it is why the Russian diesel licence matters for inflation as much as for oil.
• The semiconductor selloff is worth watching beyond equities. A broader reappraisal of AI related spending would be a risk off event for commodity currencies, even if today it has coincided with a softer US dollar.
• With the pair on the low of its overnight range and CPI at 8:30am ET tomorrow, orders at 1.4300 and 1.4205 cover both ends of the range into the release.