USD/CAD Market Update

Current Level: Low-1.40s (24hr range 1.3991 to 1.4023)

USD/CAD is trading at 1.4006 this morning, up from Friday's 1.3990 close, after reaching 1.4023 overnight. That is the highest level of the current advance. Risk appetite is firmer to open the week. Oil is lower for a fourth straight session, bond yields are easing, and equities are rising ahead of the Trump and Xi summit in Washington. The US dollar is slightly firmer overall, and moves across major currencies are small.

Market Overview:

CIBC describes a supportive start for risk assets, helped by falling oil prices and optimism ahead of the summit. Global bonds are rallying. CIBC reports the US 10-year Treasury yield down about 4 basis points to 4.96%, back below 5.00%. CIBC's view is that the 10-year yield is the key level to watch. Below 5.00%, risk assets have some room to recover. A move back above it would weigh on sentiment. CIBC expects a headline-driven week, with the summit, the Persian Gulf and energy prices setting the tone for rates and the US dollar.

Trump and Xi Meet in Washington:

Chinese President Xi Jinping arrives in Washington this week for his second summit with President Trump this year, following their May meeting in Beijing. The Heritage Foundation reports the main bilateral meeting is set for the White House on Thursday, followed by a state dinner. U.S. News reports trade, artificial intelligence and rare earth supplies are expected to dominate the talks. CIBC notes that equity markets are rising on hopes for a constructive outcome. A positive result would support risk appetite, which has tended to help the Canadian dollar. A disappointment would do the opposite.

Canadian Data/Outlook:

There is no Canadian data today. Governor Macklem speaks to the Halifax Partnership at 11:20am ET, with a press conference at 12:30pm ET, per the Bank of Canada. CIBC says markets will look for signs of how worried the Bank remains about inflation expectations. The main release this week is July retail trade on Thursday. Statistics Canada's advance estimate pointed to a 0.8% decline. Consensus is -0.8%, and CIBC economists expect -0.7%. CIBC notes that a weak result would add to evidence that the Canadian economy is slowing, which would be another headwind for the Canadian dollar. CIBC's Central Bank Watch shows a 60% implied probability of a 25 basis point Bank of Canada hike at the October 28 meeting, little changed from 61% on Friday, with no cut priced. CIBC still sees US and Canadian yield spreads and the broader US dollar trend as the bigger drivers for the pair.

Fed Watch:

Markets are still absorbing last week's Fed hike and its message that rates will stay higher for longer. CME FedWatch showed a 59.7% probability of a 25 basis point hike at the October 28 meeting as of September 20. CIBC's Central Bank Watch puts it at 53% this morning. No rate cut is priced. US data is light this week, with August durable goods orders on Friday as the only notable release. Several Fed officials speak during the week, and their comments will shape October pricing.

Technical Picture:

Resistance: 1.4023, this morning's high. Above that, 1.4080 is CIBC's fair value estimate and 1.4100 is the level CIBC strategists are targeting.
Support: 1.3991, the overnight low. Below that, 1.3950 is the top of the zone that capped the pair earlier this month and now acts as support.
Outlook: USD/CAD has traded between 1.3975 and 1.4023 over the last three sessions, holding just either side of 1.4000. Holding above 1.4000 today would keep 1.4080 to 1.4100 in view. A return below 1.3975, Friday's low, would point to a pause in the advance, with 1.3950 the level that would signal a deeper pullback.

Week Ahead:

This week is light on first-tier data in North America. For USD/CAD, Macklem's remarks today and retail sales on Thursday will show whether the market keeps pricing an October Bank of Canada hike. The heavier data comes next week, with Canadian GDP, US PCE inflation and US payrolls all due before October 2.

Other Notes:

• Crude prices are lower as concerns over Saudi supply ease. Vantage Markets reports Brent near US$102 per barrel as Saudi exports recover while the East-West pipeline is repaired. Lower oil removes some support from the Canadian dollar but eases the inflation pressure behind higher global yields.
• Bitcoin has moved back above its 50-week moving average, which CIBC notes has historically separated bull and bear phases, a sign of improving risk appetite.