Canadian Dollar Recovers from Multi-Month Low Amid Mixed US Data
The Canadian Dollar (CAD) saw renewed buying interest on Monday after hitting a multi-month low against the US Dollar (USD). The USD/CAD pair reversed earlier gains, trading around 1.4250, down from an intraday high of 1.4293, a level not seen since April 2025. This shift came as the US Dollar consolidated following mixed US business activity data. The final S&P Global Services PMI was revised slightly higher to 58.8, while the ISM Services PMI slipped to 54.9, narrowly missing market forecasts.
The US Dollar Index (DXY) trades around 102.20 after reaching a fresh year-to-date high of 102.53. Support for the Greenback comes from a decline in the Euro (EUR) due to concerns over France’s public finances and political uncertainty in Spain. Elevated US Treasury yields also bolster the USD, despite traders scaling back expectations of another Federal Reserve (Fed) interest-rate hike this month following weaker-than-expected US employment data. The 10-year US Treasury yield holds near 5.32%, close to last week’s peak of 5.34%, its highest level since 2002.
On the Canadian side, the Loonie’s strength appears to be driven by technical buying and profit-taking after prolonged weakness, rather than improved fundamentals. Analysts at Brown Brothers Harriman note that Canada’s September labor force survey, due Friday, is critical. The economy is expected to add just 5,000 jobs after losing 41,700 in August, with the unemployment rate seen rising to 6.5%. BBH argues that the Bank of Canada’s (BOC) aggressive rate hike pricing of 100 basis points in the next twelve months looks too optimistic, leaving the CAD vulnerable to a dovish repricing.
The yield gap remains favorable for the USD, with the Canadian 10-year government bond yield near 3.99%, compared to around 5.32% for the equivalent US Treasury note. BBH highlights that Canada’s core inflation is near the BOC’s 2% target, suggesting limited justification for aggressive tightening. This could leave the Canadian Dollar fragile if market expectations are scaled back.