Canadian Dollar Rebounds After Multi-Month Low
The Canadian Dollar (CAD) has seen renewed buying interest after reaching a multi-month low against the US Dollar (USD). The USD/CAD pair has retreated from its highest level since April 2025, currently trading around 1.4250 after an intraday peak of 1.4293. This shift comes as the US Dollar struggles to maintain its rally amid mixed US business activity figures.
The final S&P Global Services PMI for September was slightly revised higher to 58.8 from 58.7, while the ISM Services PMI slipped to 54.9, missing market expectations. The US Dollar Index (DXY) remains near 102.20, supported by elevated Treasury yields and political uncertainty in Europe. Despite weaker-than-expected US employment data, markets still anticipate further Federal Reserve rate hikes due to persistent inflation.
On the Canadian side, the Loonie's strength appears driven by technical buying and profit-taking rather than fundamental improvements. Analysts at Brown Brothers Harriman highlight the upcoming Canadian labor market report, expecting only 5,000 jobs added in September after a loss of 41,700 in August. They argue that the Bank of Canada's aggressive rate hike expectations (100 basis points in the next year) may be overly optimistic, leaving the CAD vulnerable to a dovish repricing.
The yield gap favors the US Dollar, with the Canadian 10-year bond yield at 3.99% compared to 5.32% for the US Treasury. This suggests limited justification for aggressive tightening, potentially weakening the Canadian Dollar if market expectations are scaled back.