USD/CAD Market Update

Current Level: High-1.40s (24hr range 1.4071 to 1.4128)

USD/CAD is trading at 1.4094 this morning, 25 points below Sunday's 1.4119 close, after a 1.4071 to 1.4128 range. The low is the weakest print for the pair this month and extends a CAD rally that has now run for two weeks. September CPI was the domestic event, and it cut two ways: headline inflation accelerated to 3.1% year over year while both core measures the Bank of Canada actually targets came in softer than expected.

Market Overview:

Risk sentiment is firmer this morning, per CIBC, with equity markets rebounding from last week's technology selloff. The Nasdaq 100 is up more than 1% as investors move back into the AI and semiconductor names that led the decline. Global bond yields are higher, reversing part of last week's flight to safety as money moves back into risk. The US dollar is broadly softer, but the euro is the clear underperformer as the deterioration in France spreads from politics into financial markets.

France Becomes Europe's Pressure Point:

The 10 year French OAT to Bund spread has widened to roughly 142 basis points from 137 basis points on Friday, per CIBC, close to its widest level since the 2012 euro debt crisis. Protests drew more than half a million people across the country on Saturday and more than 2,400 people were arrested over the weekend. French stocks and bonds have both moved sharply lower. CIBC's read is that political paralysis, fiscal stress and social unrest are now feeding off each other, and that the move in OAT spreads shows the bond market has stopped treating this as political noise. For USD/CAD the effect is indirect but real. Euro weakness is absorbing flows that would otherwise pressure the US dollar, which caps how far this CAD rally can run on broad dollar softness alone.

Canadian Data/Outlook:

September CPI rose 0.1% on the month against 0.2% expected, with headline inflation accelerating to 3.1% year over year against 3.2% expected. That leaves headline more than a full percentage point above the Bank of Canada's 2.0% target. The core measures are the more important part of the release and both missed. CPI-median printed 1.9% year over year against 2.0% expected, and CPI-trim printed 1.8% against 1.9% expected. CIBC's take is that the headline number was hot but the report was friendly for the Bank of Canada underneath, and that the core figures buy policymakers more time to assess trade and tariff risks. CIBC made no change to its official CAD or Bank of Canada forecasts on the back of it. CIBC's central bank watch this morning puts the odds of a 25 basis point hike at the October 28 meeting at 63%, with no cut priced, while the posted consensus for the overnight rate is no change at 2.25%. Today's core miss argues against urgency at that meeting even if the market continues to lean toward a move.

Fed Watch:

Markets have largely bought into an October pause after several Fed speakers backed taking a breather, per CIBC, whose central bank watch puts the odds of a 25 basis point hike on October 28 at 16% with no cut priced. CIBC Economics still looks for another hike further out. The US data calendar is thin this week, with housing data Tuesday and the October flash PMIs plus Michigan consumer sentiment Friday, and none of those are expected to move the market materially. That leaves corporate earnings and the debate over AI financing and capital spending as the story with the floor this week.

Technical Picture:

Resistance: 1.4128 is this morning's high and the first level back. 1.4200 is the October 16 high and the better test of whether the two week downtrend is done.
Support: 1.4071 is today's low. Below that, CIBC flags 1.4030 as the 50% retracement of the 1.3760 to 1.4300 move, and its FX team expects that level to stay out of reach without a material increase in near-term Bank of Canada pricing.
Outlook: The pair has tested the 61.8% retracement of that same move at 1.4094 and is sitting on it. CIBC notes its short-term momentum signal has moved off a maximum long reading, which has historically been followed by a move lower 60% of the time. Positioning is the counterweight. Real-money CAD shorts have continued to build through the rally, leaving the market increasingly offside to price action. That combination argues for a grind rather than a break, with 1.4030 the level to watch into the October 28 decisions.

Week Ahead:

The week is back loaded. The next few sessions are light enough that earnings and the AI capital spending debate set the tone, then October 28 delivers the Bank of Canada and the Fed within hours of each other, with the ECB and the Bank of Japan the following day. Clients with CAD exposure into month end should treat October 28 as the binary event, not this morning's CPI.

Other Notes:

• Oil is modestly lower on the day but remains very elevated, with WTI crude still above US$100 per barrel as improving Gulf flows compete with persistent Middle East supply risk, per CIBC. Crude at that level remains a structural support for CAD.
• CAD is the second best performing G10 currency over the past two weeks, so this is no longer the pure dollar weakness story it was on Friday. Canadian strength is now contributing.
• The euro is the weakest major this morning on the French situation, which is worth watching for anyone running EUR/CAD exposure.