USD/CAD is trading lower near 1.3960 in early European hours on Friday, retreating from a three-day winning streak as a softer US Dollar (USD) faces pressure from expectations of further Federal Reserve (Fed) rate cuts and ongoing political uncertainty in Washington.
Fed easing expectations weigh on USD
The Greenback came under renewed pressure after weaker US employment data fueled speculation of additional monetary easing. The ADP National Employment Report showed US private payrolls declining by 32,000 in September, following a revised 3,000 drop in August. The print fell well short of market expectations for a 50,000 gain, reinforcing bets that the Fed will cut rates twice more this year. According to market pricing, the first move is widely expected in October, with a second cut likely in December.
Government shutdown adds to uncertainty
The US government remains in partial shutdown after lawmakers failed to reach a funding agreement, with disputes over expanded Obamacare subsidies at the center of the deadlock. The shutdown is expected to continue into next week and has already forced delays in key data releases, including September’s Nonfarm Payrolls (NFP). The absence of official labor market figures further clouds the Fed’s policy outlook and has dampened USD sentiment.
Crude oil weakness offsets CAD strength
The Canadian Dollar (CAD) has been supported by USD softness but faces headwinds from declining crude oil prices. Concerns over market oversupply ahead of this weekend’s OPEC+ meeting have weighed on oil, Canada’s top export. Falling energy prices typically limit CAD gains and may cap USD/CAD downside in the near term.
