USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.4027 to 1.4069)

USD/CAD is trading at 1.4028, down from 1.4051 at yesterday's close, after a 1.4027 to 1.4069 range. The pair pushed to 1.4069 ahead of the Bank of Canada and has since traded back to the session low. The Bank delivered the 25 basis point hike markets had priced, taking the overnight rate to 2.50%, and paired it with a sharply higher inflation track. The Federal Reserve announces at 2:00pm ET, where a hold is expected.

Market Overview:

Risk sentiment is firmer, per CIBC, with equity markets higher as investors work through the Bank of Canada decision and position for the Fed and megacap earnings. Global bond yields are mixed, and Canadian sovereign rates are mixed as well, since the hike was largely priced before it landed. The U.S. dollar is little changed into the Fed, per BNN Bloomberg. CAD is the session's clearest mover, firming after the decision rather than on any shift in broad risk appetite. The rate outlook has driven this pair through October, and today it finally had something concrete to price.

Bank of Canada Hikes to 2.50%:

The Bank of Canada raised the target for the overnight rate by 25 basis points to 2.50% at 9:45am ET, its first increase since July 2023, per CBC and the Globe and Mail. The accompanying Monetary Policy Report carried the larger message. The Bank now sees inflation at 3.1% in 2027, against the 2.0% it forecast in July, and growth of 1.0% this year, up from 0.7%. Macklem said inflation should end this year near 3.5% and hold around 3% for most of next year before returning close to the 2% target by the middle of 2028. On the path from here, he said there could be a need to raise the policy rate further, but that the Bank will proceed carefully and take decisions one meeting at a time, per the Globe and Mail. CIBC reads the meeting as hawkish, pointing to an inflation outlook that has clearly deteriorated and an economy holding up better than the Bank expected. The stated rationale is to stop elevated energy costs from feeding into broader prices. Not everyone agrees it was necessary. Some economists argue core inflation is still close to 2% and that tightening into a weak labour market and unresolved U.S. trade tensions risks the recovery.

Canadian Data/Outlook:

Attention now moves to December 9. Money markets are pricing an overnight rate of 2.617%, which implies roughly a 42% chance of a second hike at that meeting, per Bloomberg data cited by the Globe and Mail. CIBC's central bank watch is consistent, showing 40% odds of a December increase and no chance of a cut. CIBC's own economists expect the Bank to hold in December and then hike again in January to 2.75%, which would take policy toward neutral. The data between now and then matters more than usual. August GDP lands Friday at 8:30am ET, and the October employment report follows on November 6 at 8:30am ET, against a September print that showed roughly 68,300 positions lost and a 6.5% unemployment rate. A second weak labour reading would make the January move harder to justify. Governor Macklem's press conference accompanies today's decision at 10:30am ET.

Fed Watch:

The FOMC releases its statement at 2:00pm ET, with Chair Warsh's press conference at 2:30pm ET. CME FedWatch puts the odds of a hike today near 9% to 10%, per CNBC, with no cut priced, leaving the target range at 3.75% to 4.00%. December is where the pricing sits. Estimates of the odds of at least a 25 basis point increase at the December 8 to 9 meeting range from about 78% to 86%, per the Globe and Mail and Reuters. CIBC expects a hawkish hold. The guidance is the variable, not the decision. CNBC notes Warsh has rejected traditional forward guidance, so the signal is more likely to come from the framing of this skip and from any dissents than from an explicit commitment. Thursday's Q3 advance GDP and September core PCE will test whatever he says.

Technical Picture:

Resistance: 1.4069 is this morning's high, set just before the Bank of Canada, and the first level to reclaim. 1.4083 is the October 21 high and the top of the October range.
Support: 1.4027 is this morning's low and where the pair is trading now. 1.3998 is the October 26 low and the first defence of the 1.4000 handle. Below it, 1.3968 is the October 23 low, the weakest level since mid-September.
Outlook: The pair has held a 1.3968 to 1.4069 band for five sessions and the hike did not break it. The decision removes the CAD-positive event risk, so direction into the close now rests with the Fed. A hawkish Warsh reopens 1.4069 and then 1.4083. A statement that leans against December pressure sends the pair toward 1.3998, with 1.3968 the level that defines the month.

Week Ahead:

The Fed at 2:00pm ET is the last scheduled event today, and it decides whether CAD keeps this morning's gain. Thursday is dense, with U.S. GDP and core PCE in the morning and the ECB and the Bank of Japan around them. Friday's Canadian GDP is the first read on whether the economy supports the Bank's upgraded growth track. Clients with CAD exposure should expect wider ranges this afternoon than the five sessions before today produced, and should not assume the 1.4000 area holds through the Fed.

Other Notes:

• WTI crude settled at 99.90 US dollars on Tuesday, per the Globe and Mail, and remains close to the 100 US dollar area that has supported CAD through October. Energy costs are the Bank of Canada's stated reason for moving.
• European natural gas reached 100 euros per megawatt hour for the first time since the 2022 energy crisis, per CIBC, on reports the U.S. could resume strikes on Iran after next week's midterms.
• CIBC flags a widening gap between equity and credit markets in AI-linked names, with yields on some data-centre financings now in double digits and default protection costs rising, even as the S&P 500 trades near record highs.
• North American clocks change on Sunday, November 1. Europe already shifted on October 25, so the London and New York overlap is one hour off its usual window until then.