USD/CAD market update

Current Level: High-1.39s (24hr range 1.3950 to 1.3997)

USD/CAD is trading at 1.3985, against 1.3988 at Monday's close, after a 1.3950 to 1.3997 range. The pair has now spent five sessions between 1.3942 and 1.3997, and 1.3950 has contained the downside on each of the last two days. CIBC describes the pair as holding just above key support ahead of the election results. The U.S. dollar is slightly stronger against the G10 basket this morning as investors stay cautious into the vote, per CIBC, which is the whole of the move here. Nothing in the overnight session changed the rate story, and the pair enters the day with its two real tests still ahead of it on Thursday and Friday.

Market Overview:

Risk sentiment is slightly positive this morning, per CIBC, although markets are struggling for direction as voting gets underway. Equity futures are marginally higher as investors buy the dip. Global bond yields are mixed, with both U.S. and Canadian 10 year yields easing from their recent highs while remaining well above where they started the year, per CIBC. Oil is the one market that is genuinely moving, and it is moving on headlines out of Washington and Doha rather than on anything to do with the election. For USD/CAD the pattern of the last two weeks is intact: the pair is being set by relative rate expectations, and crude is contributing far less than its size would suggest.

Midterms Today, Consequences Tomorrow:

Americans head to the polls today with control of both the House and Senate contested. Democrats need a net gain of three seats to take the House and four to take the Senate. Betting markets lean heavily toward a Democratic sweep, with Polymarket odds at 94% for Democratic control of the House and 73% for the Senate, per CIBC. CIBC's strategists argue the aftermath will matter more to markets than the result, because a blue sweep is largely priced and the focus will shift straight back to Iran, oil and trade. CIBC reads a sweep as bond friendly, since it would price more legislative gridlock into the back half of the current term, and that channel is the one that reaches this pair. There is a secondary wrinkle worth noting: CIBC flags several state races that could tighten restrictions on data centre development, which lands at a moment when investors are already questioning the scale of AI spending. Currency markets have not historically repriced on midterm results, and the setup does not argue for an exception unless the outcome is contested.

Oil and the Iran Negotiations:

Crude remains headline driven after a sharp decline on Monday. WTI fell below US$100 a barrel after U.S. Secretary of State Marco Rubio said the administration would prefer to end the conflict with Iran through diplomacy, with Brent reaching US$105.86 and WTI US$97.12 at the lows, per Reuters. WTI traded down to US$94.30 overnight, its weakest since October 16, before recovering to about US$96.76, per FXStreet. The talks are being mediated by Qatar and have not produced a substantive breakthrough, and Iran has said reopening the Strait of Hormuz depends on the United States meeting its demands. Press reports indicate President Trump wants to give diplomacy more time before considering renewed strikes, and that the decision point sits after today's vote. Two points follow for this pair. First, elevated energy costs are the stated reason the Bank of Canada raised rates on October 28, so the direction of crude from here feeds directly into December pricing on both sides of the border. Second, a large part of the recent rally was war risk premium, and that premium is what has come out over the last two sessions. CIBC's strategists have flagged a post election pullback in oil as the main medium term risk to CAD, and this week is the first real test of that view.

Canadian Data/Outlook:

There is no Canadian data today. The federal budget arrives Thursday and Friday brings the October Labour Force Survey at 8:30am ET, with consensus at 14,600 jobs after a 68,300 decline in September and the unemployment rate expected to hold at 6.5%. CIBC's strategists cite stronger Canadian employment as one of their stated catalysts for USD/CAD downside over the coming sessions. CIBC's central bank watch shows 49% odds of a 25 basis point increase at the December 9 meeting, with no cut priced, down from the 51% this report carried last week. Independent pricing agrees: market odds pages put the December hike at roughly 48% against 52% for a hold, per rateprobability.com. That is as close to a coin toss as this pair gets, which is why Friday's print carries more weight than a single employment report usually would. The Bank raised its policy rate to 2.50% on October 28, its first increase since July 2023, and did so against two consecutive months of job losses, judging the economy to be showing resilience. A second soft print would make the December case difficult to sustain, while a clear rebound would put a hike back on the table and should pull this pair toward CIBC's target.

Fed Watch:

CIBC's central bank watch puts the odds of a 25 basis point hike at the December 9 meeting at 76%, with no cut priced, unchanged from Monday. That is consistent with the range of market readings since the October decision, which have run from the low 70s to the mid 80s depending on when they were taken. The Federal Reserve held at 3.75% to 4.00% on October 28 in a 10 to 2 vote, with Governor Cook and Cleveland Fed President Hammack dissenting in favour of an increase. Friday's non-farm payrolls report at 8:30am ET is the week's main event for U.S. pricing, with consensus at 65,000 jobs after a 29,000 gain in September, the unemployment rate expected to hold at 4.2% and average hourly earnings seen at 0.3% after 0.1%. JOLTS job openings for September land today at 10:00am ET and ISM Services for October follows Wednesday at 10:00am ET. October CPI on November 10 is the last inflation reading the Fed sees before it decides.

Technical Picture:

Resistance: 1.3997 is this morning's high and the level to clear. 1.4015 is the October 29 high and sits above the 1.4000 handle. Beyond that, 1.4070 is the October 28 high, set before the Bank of Canada decision.
Support: 1.3950 is this morning's low and has now held twice in two sessions. 1.3940 is the area CIBC's strategists are looking for the pair to test. 1.3942 is the October 30 low and the weakest level since September 16, with 1.3920 the bottom of the zone CIBC has identified and 1.3914 the September 16 low beneath it.
Outlook: The pair is compressing. Five sessions inside a 55 point band, with the floor at 1.3950 on each of the last two days and a lower high each day since October 29, is a market waiting for information rather than one taking a view. CIBC's strategists see several catalysts for downside and are looking for a test of 1.3940, which sits just two points above the October 30 low. Clearing that zone would open 1.3920 and then the September 16 low at 1.3914. Holding it keeps the range intact and leaves 1.3997 and 1.4015 as the levels to recover. Clients with U.S. dollar payables have now had three sessions to buy in the 1.3950s and should recognise that CIBC treats this area as a level to work rather than one to chase. Those with receivables should note that the compression has made option premiums cheap relative to what is sitting in Thursday and Friday, and that two employment reports at the same hour on Friday are how this range most plausibly breaks.

Week Ahead:

Today is noise for this pair and Friday is signal. Two employment reports at the same hour give the market a clean read on the relative labour backdrop at a point where December pricing in Canada is close to even and the U.S. is three quarters of the way to a hike. Thursday carries the Canadian budget and the Bank of England, neither of which has historically moved USD/CAD, although substantive Canadian tax reform would be the exception worth watching. The one genuinely unscheduled risk this week is an Iran headline, and press reporting suggests the decision point on that sits immediately after today's vote.

Other Notes:

• The Reserve Bank of Australia raised its cash rate 25 basis points to 4.85% overnight and now expects inflation to stay elevated through much of 2027, per CIBC. CIBC's view is that Australia continues to lead the G10 tightening cycle but that much of the good news is already in the AUD, and it does not expect the decision to change its AUDCAD or AUDUSD forecasts.
• The Nasdaq has officially entered correction territory and is set for a modest bounce this morning, per CIBC, with chip stocks recently hitting a six month low after falling nearly 30% from their June highs. CIBC also notes that since 1982 both cap weighted and equal weighted U.S. stocks have gained more than 20% on average in the twelve months following a midterm election.
• Canadian and U.S. 10 year yields have both eased from their recent highs while holding well above their levels at the start of the year, per CIBC. A gridlock result tonight would reinforce that pullback, and the front end of the U.S. curve is the channel through which it reaches this pair.