USD/CAD market update

Current Level: High-1.39s (24hr range 1.3950 to 1.3987)

USD/CAD is trading at 1.3975, down from 1.3992 at Thursday's close, after a 1.3950 to 1.3987 range. The pair extended below 1.3968, the October 23 low this report has flagged as the level that defines the month, and reached 1.3950 before recovering. That is the top of the near-term support zone CIBC's strategists identify. CIBC notes that the weaker GDP data has failed to dent CAD. The U.S. dollar is under broad pressure as traders pare back Fed tightening expectations past December, per ActionForex.

Market Overview:

Risk sentiment is weaker again this morning, per CIBC, as another round of technology earnings deepens the selloff in AI-linked stocks. Global bond yields are lower as investors move into safer assets. U.S. Treasury yields have fallen almost 40 basis points in October and are on track for their first monthly decline since February, per CIBC. The U.S. dollar is mixed against the G10, with the Swiss franc and the yen among the stronger currencies. The usual risk-off support for the U.S. dollar is not showing up against CAD, because the same move is pulling Treasury yields and Fed expectations lower.

Tech Selloff Deepens:

The Nasdaq is down nearly 3.0% and the S&P 500 is off 1.1%, per CIBC. Intel is down about 29% after a weak outlook and is on track for its worst day since 1974. The company guided fourth quarter revenue to 15.0 to 16.0 billion U.S. dollars, below expectations, per Quartz, and Amazon shares also fell after its results. CIBC notes the selling is concentrated in technology. The equal weight S&P 500 is close to its all-time high, which points to investors rotating out of AI names rather than out of equities as a whole. This extends the theme this report has tracked all week, as investors question whether the scale of AI spending will earn an adequate return. For USD/CAD the effect is running through rates rather than risk appetite. CIBC expects yields could fall further if the tech selloff worsens.

Canadian Data/Outlook:

Statistics Canada reported that real GDP was flat in August, against expectations for 0.2% growth, and its flash estimate points to a 0.1% contraction in September. That leaves third quarter growth tracking at about 1.3% annualized, down from 3.3% in the second quarter, per CBC News, and below the 2.0% the Bank of Canada projected in Wednesday's Monetary Policy Report, per CIBC. Statistics Canada attributed the August weakness mainly to wholesale trade, which fell 1.4% on lower motor vehicle and parts sales. Maintenance outages at nuclear plants in Ontario and New Brunswick weighed on utilities, and public sector output also declined. Retail trade rose 1.2% and manufacturing 0.3%, per ActionForex, although CIBC notes manufacturing may have been lifted by businesses getting ahead of new U.S. tariffs. CIBC's view is that the data is not a disaster but softer than the Bank would have liked, and that the weaker September estimate points to less momentum heading into the fourth quarter. CIBC's central bank watch shows 51% odds of a 25 basis point hike at the December 9 meeting, unchanged from Thursday, with no cut priced. CIBC reads today's numbers as giving the Bank reason to wait until January before raising rates again. Official September and third quarter figures are due November 30. The October employment report on November 6 is the next domestic test, with consensus at 12,500 jobs after a 68,300 loss in September.

Fed Watch:

December pricing has come in since Wednesday's hold. CME FedWatch put the odds of a 25 basis point hike at the December 9 meeting at 72.7% this morning, down from 83.0% on Thursday, and overnight index swaps imply 67.6%, per ActionForex. CIBC's central bank watch shows 80%, with no cut priced. The larger change is further out. Swaps now price roughly two quarter-point hikes by June 2027, down from close to three earlier in the week, per ActionForex. The third quarter Employment Cost Index rose 0.8%, in line with expectations and down from 0.9%, per Newsquawk, so this morning's wage data gave no reason to reverse the move. The post-meeting blackout ends today. Richmond Fed President Barkin speaks at 9:30am ET, San Francisco Fed President Daly at 12:00pm ET and St. Louis Fed President Musalem at 12:30pm ET. Any pushback against the repricing would come from these remarks.

Technical Picture:

Resistance: 1.3987 is this morning's high, just under Thursday's 1.3992 close. 1.4015 is Thursday's high and sits above the 1.4000 handle. Beyond that, 1.4070 is Wednesday's high, set before the Bank of Canada decision.
Support: 1.3950 is this morning's low, the lowest level since September 16, and the top of the 1.3950 to 1.3920 zone CIBC's strategists identify as near-term support. 1.3920 is the bottom of that zone. Just below it, 1.3914 is the September 16 low, with the mid-September lows in the high 1.38s beneath that.
Outlook: The 1.3968 level that held the October range has given way, and the pair is now testing CIBC's support zone. CIBC's strategists expect a bounce from here. Over a longer horizon they see CAD lagging other G10 currencies, particularly if oil prices ease after the U.S. midterms. Holding 1.3950 keeps the bounce case in place, with 1.3987 and then 1.4015 the levels to recover. A break of 1.3920 would take the pair below the September 16 low and toward the mid-September range in the high 1.38s. Clients with U.S. dollar payables should note that CIBC treats this zone as a likely turning point rather than a level to chase lower.

Week Ahead:

With Canadian GDP out of the way, the calendar is light until November 6. Tuesday's midterms are the main event before then, and CIBC's strategists tie the longer-term CAD outlook to where oil goes after the vote. Next Friday's jobs data is the bigger test for December pricing on both central banks. A second weak Canadian print would make a January hike harder to justify, while a soft payrolls number would extend this week's pullback in Fed expectations. Both reports land together at 8:30am ET.

Other Notes:

• Oil is higher this morning on renewed concerns about Iran, per CIBC. Elevated crude has supported CAD through October, and CIBC's strategists flag a pullback in oil after the midterms as the main risk to CAD over a longer horizon.
• The Bank of Japan held its policy rate at 1.25% in an 8 to 1 vote, said underlying inflation has reached 2% for the first time, and raised its inflation forecasts, per Bloomberg. The yen rose as much as 0.4% to 157.12 per U.S. dollar.
• North American clocks fall back one hour on Sunday, November 1, restoring the usual London and New York overlap from Monday.