USD/CAD Market Update

Current Level: High-1.39s (24hr range 1.3982 to 1.4019)

USD/CAD is trading at 1.3985 this morning, 25 points below Thursday's 1.4010 close, after a 1.3982 to 1.4019 range. The pair opened just above 1.4000 and traded through it early, so the floor of the 1.4000 to 1.4100 band CIBC had expected to hold into next week has now given way. The move came without help from risk appetite. Thursday was a heavy day for technology stocks and credit, a backdrop that would usually favour the US dollar, and CAD gained regardless on higher crude and firm domestic data.

Market Overview:

Risk sentiment remains cautious this morning, per CIBC, with equities trying to stabilise after Thursday's selloff. Higher oil and wider credit spreads are keeping investors defensive. Global bond yields are slightly higher as the haven demand seen on Thursday starts to unwind. The US dollar is mixed against the G10 basket, and CAD is among the currencies drawing support, helped by crude and by a healthy retail sales print. The pattern of the past two weeks holds: the dollar has not been collecting haven flows during equity weakness, which keeps rate expectations as the main driver of USD/CAD into the October 28 decisions.

AI Selloff Reaches Credit:

The Nasdaq Composite fell 2.6% on Thursday to 26,008.86, its worst session since June, and the S&P 500 lost 1.2%, per Yahoo Finance. The Philadelphia Semiconductor Index dropped 6.7%. Meta fell about 7% after raising its capital spending forecast, even though revenue beat expectations. CIBC's read is that the market's question has moved on from whether AI demand is real to whether companies can earn an adequate return on the investment. The more important development is in credit. CIBC reports global corporate spreads have widened to their highest level since May 2025 as investors ask for more compensation to fund the AI buildout. CIBC also notes that the gap between the market's AI winners and losers has closed sharply in a matter of weeks. For FX the effect remains indirect, but a move from equities into credit is a broader risk signal than the stock-specific volatility seen earlier this month.

Oil Back Above 100 US Dollars:

WTI crude is back above 100 US dollars per barrel, with CIBC putting it above 102 US dollars this morning as attacks on Saudi Arabia intensify. Reuters reported Brent near 114 US dollars in early Friday trading, on course for a third consecutive weekly gain. For CAD this is the main offset to weaker risk sentiment, and it has now supported the currency through most of the week. CIBC flags the other side of the trade: sustained energy prices add to inflation pressure just as central banks head into their meetings, which is the channel through which the hawkish case for the Bank of Canada is being argued.

Canadian Data/Outlook:

Canadian retail sales rose 1.2% in August against the 1.3% advance estimate, per Statistics Canada, after a 0.7% decline in July. Core sales excluding gasoline and autos rose 1.1% on broad gains, and all nine subsectors were higher. Sales volumes also rose 1.2%, so the gain was not only a price effect. The advance estimate for September points to a further 0.7% increase. CIBC describes these as good numbers that have supported CAD, but expects next week's Bank of Canada and Fed meetings to matter far more for the currency's direction. CIBC's central bank watch puts the odds of a 25 basis point Bank of Canada hike on October 28 at 78%, with no cut priced. That is down from 85% on Thursday, the first decline in implied hike odds after four sessions of increases. The economic calendar shows a consensus of 2.50% for the overnight rate, a 25 basis point increase from 2.25%. The decision comes with a new Monetary Policy Report, the first updated projections since July.

Fed Watch:

CIBC's central bank watch puts the odds of a 25 basis point Federal Reserve hike on October 28 at 11%, with no cut priced, little changed from 10% on Thursday. The fed funds rate stands at 4.00% and the market expects a pause. The US calendar closes the week with the October flash PMIs and the final University of Michigan sentiment survey, and the next major US data comes after the decision, with Q3 GDP and September core PCE on October 29. The rate differential remains the core of the USD/CAD story. A Bank of Canada hike alongside a Fed on hold would narrow the gap between the two policy rates, and that expectation accounts for much of the pair's decline this month.

Technical Picture:

Resistance: 1.4000 is the first level back, the former band floor that has now been broken. 1.4019 is this morning's high, and 1.4051 is Thursday's high and the better test of whether the move lower has run its course.
Support: 1.3982 is today's low and the lowest print of the month. A sustained trade below it would leave the pair without a nearby level flagged by the desk's bank research.
Outlook: Six consecutive sessions of CAD gains have taken the pair through the 1.4030 retracement and now through 1.4000, so the consolidation band CIBC described earlier this week no longer holds. CIBC's strategists still see tactical risks around next week's decisions favouring some upside and prefer to sell spikes rather than chase the pair lower. Positioning supports that caution, since market pricing has already moved a long way toward a Bank of Canada hike. A hold next Wednesday against 78% priced remains the scenario that would reverse the most of this move.

Week Ahead:

October 28 remains the event that matters for CAD. The Bank of Canada and the Federal Reserve decide within hours of each other, and the UK Budget lands the same morning. The ECB, the Bank of Japan, US GDP and core PCE follow on the 29th. Clients with CAD exposure into month end should treat the 9:45am ET Bank of Canada release as the largest scheduled risk event in the window. With the pair already below 1.4000 and hike pricing near 80%, much of a hawkish outcome is reflected in the price, and the larger move would follow a hold.

Other Notes:

• Next week's calendar shows a consensus for a 25 basis point RBNZ hike to 3.00%. CIBC's October 22 note argued the risks around that decision were skewed toward a dovish surprise after New Zealand's Q3 CPI came in below expectations.
• Australian CPI on Tuesday evening is expected to show headline inflation rising to 4.2% year over year from 4.0%, with a 0.7% monthly gain expected.