USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4014 to 1.4049)

USD/CAD is trading at 1.4037 this morning, 10 points below Wednesday's 1.4047 close, after a 1.4014 to 1.4049 range. The low is the lowest print of the month and the first trade through 1.4030, the 50% retracement that turned the pair back on each of the past two sessions. The pair did not hold below it and the range stayed narrow at 35 points, but the level that had been containing this move has now been tested from the other side. The notable part is the context: this is a risk-off morning with equities lower and safe havens bid, a backdrop that would normally support the US dollar, and CAD is gaining anyway on higher oil and on next Wednesday's rate differential.

Market Overview:

Risk sentiment is weaker this morning, per CIBC, with equities lower, bonds rallying and safe-haven currencies outperforming. The AI trade is back under pressure, oil is moving higher, and French fiscal stress is intensifying. The US dollar is mixed against the G10 basket rather than broadly bid, with the yen and the Swiss franc the clear outperformers. That is the same pattern that has held for most of October: the dollar has not been collecting the haven flow that a selloff of this size would usually direct to it, which leaves rate expectations rather than risk appetite as the dominant driver for USD/CAD into the October 28 decisions.

AI Expectations Reset:

The Nasdaq is down roughly 1.5% as technology earnings fail to clear elevated expectations, per CIBC. Lam Research is down more than 8% on a weaker outlook and Tesla is lower after cutting its spending plans. Meta is trading lower despite signs that its AI investments are paying off, and the company's credit default swaps hit a record after it disclosed roughly 825 billion US dollars in future spending commitments. CIBC's read is that this is an expectations problem rather than an earnings problem, which is a difficult setup when positioning is crowded. Chinese equities are compounding the move, with the CSI 300 entering a bear market after a 20% fall from its June high. This is the second time in four sessions that the AI complex has set the tone, and the FX read-through remains indirect: the dollar has not benefited from either direction in technology this month.

French Bond Stress Spreads:

The French 10 year yield has risen to 5.13%, its highest since 2002, per CIBC, and the spread over Germany has widened to 175 basis points, the widest since 2011. Stress is now starting to spill into Italy. For context, the same yield first crossed 5% only yesterday and the spread was near 160 basis points, so the move is accelerating rather than stabilising. Trading Economics and other market reporting through October have tracked the same repricing, driven by fiscal and political concerns rather than by the European rate outlook. Global yields elsewhere are lower on haven demand, with the US 10 year down to 5.03%, which means the French move is idiosyncratic and is widening against a falling benchmark. The ECB decides on October 29 and this is now the most likely source of an unscheduled risk event in the window.

Oil Approaches 100 US Dollars:

WTI crude is nearing 100 US dollars per barrel after the US ordered diplomats to leave Saudi Arabia amid growing threats from Houthi militants, per CIBC. Newsquawk separately reported the US embassy advising Americans to leave Saudi Arabia immediately. CIBC's read is that while shipments have improved, supply reaching the market remains well below pre-war levels. For CAD this is the clearest offset to the risk-off move. Brent and WTI have now held near five month highs for three sessions, and the terms of trade support that was described as steady rather than building earlier this week is building again. The inflation implication cuts the other way for the Bank of Canada, since sustained energy prices are the main channel through which the hawkish case is being argued.

Canadian Data/Outlook:

CIBC's central bank watch this morning puts the odds of a 25 basis point Bank of Canada hike on October 28 at 85%, with no cut priced. That is up from 82% yesterday, 79% on Tuesday and 63% on Monday, a 22 point move in implied hike pricing over four sessions with no new Canadian data in between and none scheduled before the decision itself. The posted consensus for the overnight rate remains no change at 2.25%. Published economist commentary has not followed the market: roundups of major Canadian bank economists since Monday's CPI continue to call a hold, citing core measures that eased to 1.8% on CPI-trim and 1.9% on CPI-median, both below consensus, alongside a September employment report that showed roughly 68,000 jobs lost and unemployment at 6.5%. The hawkish case rests on the three month annualized core figures near 2.6% and 2.7% and on the risk that oil near 100 US dollars feeds the core basket. The gap between 85% implied and a consensus of no change is now the widest it has been this cycle, and it is the most important number for CAD exposure into month end.

Fed Watch:

CIBC's central bank watch puts the odds of a 25 basis point Federal Reserve hike on October 28 at 10%, with no cut priced, down from 16% yesterday. The fed funds rate stands at 4.00% and the market is settled on a pause. The US 10 year yield has fallen to 5.03% on haven demand, which is consistent with a Fed expected to stay put while growth concerns build. No cut is priced at this meeting or in December. The US data calendar is empty today, with Friday's October flash PMIs and Michigan consumer sentiment the only releases left this week, so earnings continue to carry the market. The asymmetry for USD/CAD is unchanged and is the engine of the move: a Bank of Canada hike against a Fed on hold narrows the rate differential, and that narrowing accounts for most of the three cents the pair has given up this month.

Technical Picture:

Resistance: 1.4049 is this morning's high and the first level back. 1.4083 is Wednesday's high and the better test of whether the downtrend has paused.
Support: 1.4014 is today's low and the lowest print of the month. Below it, CIBC flags strong technical support at 1.4000, which is also the floor of the 1.4000 to 1.4100 band CIBC's strategists expect to hold into next week.
Outlook: The 1.4030 retracement held on a closing basis for a third session but was pierced intraday for the first time, which is a change in character rather than a break. Five consecutive sessions of CAD gains with a contracting daily range is the profile of a market grinding toward an event rather than trending. CIBC's strategists expect consolidation in the 1.4000 to 1.4100 area in the near term and see risks around next week's decisions as favouring some upside, while looking to sell a rally over the medium term. The counterweight to further CAD strength is still positioning, with real-money CAD shorts built through the September to October rally and the market increasingly offside to price action. A hold from the Bank of Canada against 85% priced is the scenario that would unwind the most of this move, and it is a larger risk today than at any point this week.

Week Ahead:

Six days out, October 28 is unchanged as the event that matters. The Bank of Canada and the Federal Reserve decide within hours of each other and the UK Budget lands the same morning, with the ECB and the Bank of Japan following on the 29th alongside US GDP and core PCE. The Bank of England decision on November 5 sits just outside that cluster with the bank rate at 3.75%. Clients with CAD exposure into month end should treat the 9:45am ET Bank of Canada release as the single largest scheduled risk event in the window. With market pricing at 85% for a hike and the economist consensus still at no change, the outcome carries genuine two-way risk for CAD, and the larger move is the one that would follow a hold.

Other Notes:

• The New Zealand dollar is the G10 underperformer after Q3 CPI came in below both expectations and the RBNZ's own forecast, per CIBC. CIBC's strategists see the risk-reward around next Tuesday's RBNZ decision as skewed toward a dovish surprise and look for NZD to weaken against both AUD and CAD.
• The yen and the Swiss franc are the G10 outperformers on haven demand, per CIBC, with global bond yields lower across the board apart from France and now Italy.