USD/CAD market update

Current Level: Low-1.41s (24hr range 1.4011 to 1.4113)

USD/CAD is trading at 1.4112 after a 1.4011 to 1.4113 range, up 92 points from Thursday's 1.4020 close. That is the largest one day advance in at least two months and the first close above 1.4100 since October 19. The pair had been confined between 1.3929 and 1.4025 since October 29, and the 1.4016 to 1.4025 ceiling that capped four separate attempts this week gave way within minutes of the 8:30am ET data. The move is entirely a relative data story. The two employment reports landed in the same half hour and pointed in opposite directions.

Market Overview:

Risk sentiment is mostly positive this morning, per CIBC, with dip buyers emerging after Thursday's equity rout. The U.S. dollar is firmer across the board and Treasury yields are climbing at the front of the curve, with the U.S. 2 year yield up 7 basis points on the day, per CIBC. Equity futures are attempting to stabilize, with Nasdaq 100 futures up around 1.5%, per CIBC citing Bloomberg. For USD/CAD the relevant point is that the dollar leg and the Canadian leg are pushing the same way for the first time this week. Monday through Thursday the pair was held by a dollar negative political story that faded and a domestic catalyst that had not yet arrived. Both of those are now resolved, and both resolved in favour of a higher pair.

The Cleanest Jobs Divergence of the Cycle:

U.S. nonfarm payrolls rose 165,000 in October against a 70,000 consensus, and the unemployment rate fell to 4.1% from 4.2% rather than holding as expected, per CIBC citing the Bureau of Labor Statistics. The prior two months were revised higher by a combined 84,000. CIBC describes the print as roughly a 4.75 standard deviation beat and reads the U.S. labour market as holding up materially better than expected. Canada moved the other way on every line. Employment fell 4,700 against a 15,000 consensus, the unemployment rate rose to 6.7% from 6.5%, 18,100 full time positions were lost against a part time gain, and wage growth for permanent employees slowed to 2.0% year over year from 2.3%, per CIBC citing Statistics Canada. CIBC's own read is that the divergence puts Fed hikes back into the curve, keeps pressure off the Bank of Canada, and provides a fundamental tailwind for USD/CAD. CIBC's strategy team had been positioned for the opposite outcome and will publish revised forecasts early next week.

Canadian Data/Outlook:

This was the third consecutive monthly decline in Canadian employment, following September's 68,300 drop. The detail is worse than the headline. Youth unemployment rose to 13.7%, reversing most of the improvement recorded over the summer, per CIBC citing Statistics Canada. CIBC also notes the weakness arrived despite expectations for temporary hiring around the Alberta referendum, which makes the miss harder to dismiss as noise. CIBC's central bank watch now puts the odds of a 25 basis point Bank of Canada increase on December 9 at 30%, with no cut priced, down from 53% in Thursday's note. That is a 23 point repricing in a single session and it is the mechanism that moved this pair. The Bank raised its policy rate to 2.50% on October 28, its first increase since July 2023, and has now seen three straight months of job losses since. A December hold is close to the base case, and the rate differential argument that supported CAD through late October has thinned accordingly.

Fed Watch:

CIBC's central bank watch shows a 79% probability of a 25 basis point hike at the December 9 FOMC meeting, with no cut priced. That reading is down from 83% in Thursday's note, which sits awkwardly against a payroll print of this size and a 7 basis point rise in the 2 year yield, so treat the table as lagging the morning rather than as a signal that hike odds fell. Independent corroboration was again unavailable. CME Group's FedWatch tool was last reported near 71% for a December hike in coverage dated November 2, and no fresher independent reading could be sourced this morning, so the gap between CIBC's number and public pricing stays open for a fourth session. Both notes in this morning's inbound set read the payroll report as reinforcing the case for a December increase.

Technical Picture:

Resistance: 1.4152 is the October 19 session high and the first level above this morning's print. 1.4200 is the next, with the September 29 high at 1.4203 reinforcing it.
Support: 1.4011 is this morning's low and sits on the 1.4016 to 1.4025 shelf that capped the pair all week, so that zone is now the first line on a pullback. 1.3929 is the November 4 low and the floor of the range that broke.
Outlook: The breakout is clean and it came on a fundamental catalyst rather than on thin conditions, which argues for respecting it. Today's advance has recovered roughly a third of the 1.4301 to 1.3929 decline that ran from October 14 to November 4. The caution is that a 92 point single session move invites consolidation, and the pair has twice this autumn stalled above 1.4150 without a fresh catalyst. Next week's U.S. inflation data is that catalyst.

Week Ahead:

Tuesday's U.S. inflation report is the only tier one release inside the next two weeks and it is the last major U.S. data point of consequence before the December 9 decisions, which fall for the Federal Reserve and the Bank of Canada on the same day. After this morning, the market needs the inflation side of the mandate to agree with the labour side. A firm core print extends the dollar leg of today's move. A soft one is the most plausible route back toward 1.4011. There is no Canadian data of consequence inside the window, so the pair trades on the U.S. calendar from here.

Other Notes:

• Thursday's equity selloff was severe. The S&P 500 fell 4.4%, the Nasdaq 100 dropped 6.4%, and semiconductors fell roughly 12%, the largest decline since March 2020, per CIBC citing Bloomberg. CIBC notes the Nasdaq broke below its 40 week moving average and cautions against reading the first bounce as the all clear.
• Oil is quiet after a volatile week, with WTI trading around US$91 per barrel this morning, per CIBC. The commodity channel contributed nothing to CAD today, which left the currency fully exposed to the employment miss.
• Thursday's federal budget passed without market consequence. Deficits came in slightly below prior expectations and the debt to GDP ratio is broadly stable, and CIBC Economics reads Canada's fiscal position as materially less concerning than the U.S., which preserves Canada's relative advantage in bond markets.