USD/CAD market update

Current Level: Mid-1.42s (24hr range 1.4186 to 1.4250)

USD/CAD is trading at 1.4240 after a 1.4186 to 1.4250 range, up 51 points from Tuesday's 1.4189 close. The pair has now added roughly 120 points over two sessions and has taken out every high set since the November 6 payrolls breakout. The notable feature of this morning is what is not working: crude is up and that normally supports the Canadian dollar, yet the pair is higher anyway, which puts the move squarely on the dollar leg.

Market Overview:

The U.S. dollar is firmer across the majors. The dollar index has risen about 0.3% to a four week high near 102.5 as December rate increase expectations rebuild, per Reuters. The U.S. cash Treasury market is closed for Veterans Day, so there is no fresh cash yield print. Futures imply a 10 year yield near 4.99%, just under the 5% line, after Tuesday's cash close at 4.98% and a 17 basis point jump in the 2 year to 4.73%, per published Veterans Day market coverage. Equity markets are open and higher, with the S&P 500 up about 0.9% and the Nasdaq Composite up about 1.5% in morning trade while the Dow is slightly lower, per Yahoo Finance. Canadian banks are closed for Remembrance Day. Thin conditions on both legs mean position adjustment carries more price impact than usual today.

The Dollar Leg Is Now Doing All of the Work:

Tuesday's inflation data settled the December question and the dollar has kept bidding on it. Markets are fully priced for a 25 basis point increase at the December 9 meeting, with roughly a 10% to 14% probability assigned to a 50 basis point move, per CME Group's FedWatch tool. That is a narrower debate than it was 48 hours ago, and the repricing has been expressed through the front end of the U.S. curve and the dollar rather than through equities, which have recovered. For USD/CAD the implication is direct. The rate differential argument is pulling harder than the commodity argument, and until a data point challenges the December path the dollar leg sets the direction.

Crude Rebuilds Part of the Premium It Shed:

WTI is trading near US$86.60 and Brent near US$92.40, per FXStreet and published wire coverage, after both benchmarks touched two month lows on Tuesday. Iran rejected a key U.S. nuclear demand and attacks on shipping in the Strait of Hormuz have continued, including reports of mines in the waterway, which has revived supply risk. This report flagged yesterday that the geopolitical premium could rebuild as fast as it unwound, and that is what has happened. Two qualifications matter. U.S. crude inventories rose 9 million barrels in the week ended November 6, which is capping the recovery, and both benchmarks remain far below late October levels, when Brent traded above US$110 and WTI above US$100. The Canadian dollar is getting no benefit from the bounce this morning, which is itself a signal about where the market's attention sits.

Canadian Data/Outlook:

There is no Canadian data today and no first-tier domestic release until Monday, when October CPI lands at 8:30am ET. Prior readings were 0.1% month over month on the headline, 1.8% year over year on trimmed mean and 1.9% on median, per Statistics Canada. The December 9 Bank of Canada decision remains the unresolved leg of this pair. Market implied odds of a 25 basis point increase sit in a wide band of roughly 31% to 46% across published rate probability trackers, with the dispersion itself telling you the market is split. The policy rate has been 2.50% since the October 28 increase, the Bank's first since July 2023, and three consecutive monthly declines in employment have followed it. A December hold remains the more likely outcome, and that asymmetry against a fully priced Fed increase is the structural support under USD/CAD.

Fed Watch:

CME Group's FedWatch tool shows a 25 basis point increase on December 9 as fully priced, with a 50 basis point move carrying roughly a 10% to 14% probability depending on the snapshot. Governor Christopher Waller said on November 10 in London that he leans toward supporting a 25 basis point increase and that a 50 basis point move should be considered if core inflation ran near 0.3% month over month or higher, a condition the October data met. Deutsche Bank now expects consecutive 25 basis point increases in December, January and March, per published coverage of its revised forecast. The remaining inputs before the meeting are Friday's producer price data and the October PCE price index on November 25, with the FOMC minutes on November 18 providing colour on how wide the internal debate already is.

Technical Picture:

Resistance: 1.4250 is today's high and the top of the two session advance. Above it there is no recent reference until the 1.4300 round level.
Support: 1.4186 is today's low and Tuesday's close area. Below that, 1.4105 is the November 10 low and the base of the current leg.
Outlook: The structure is higher highs and higher lows across four of the last five sessions, and the pair is trading at the top of its range rather than fading the move. A sustained push through 1.4250 opens 1.4300 with little in between. Holiday liquidity argues for wider spreads and faster moves in both directions, so levels should be treated as approximate today.

Week Ahead:

Monday's Canadian CPI is the only release in this window that can move the domestic leg of this pair, and it is the more important of the two inflation prints for USD/CAD precisely because the Fed path is already settled while the Bank of Canada path is not. Friday's producer price data matters mainly as confirmation, since a firm reading would reinforce the 50 basis point tail rather than change the base case.

Other Notes:

• The AI complex has stabilized. CoreWeave's results eased concern about debt funding across the sector and chip stocks rallied, with Nvidia recovering, per Yahoo Finance and wire coverage. The risk-off channel that threatened to become a currency driver last week has gone quiet for now.
• U.S. crude inventories built 9 million barrels in the week ended November 6, a large enough surplus signal to limit how far the Hormuz risk premium can carry crude from here.
• With the U.S. cash bond market closed, today's dollar strength is being expressed without a cash yield reference. Thursday's reopening will confirm or contradict what futures priced today.