The USD/CAD holds firm close to 1.3970 on Friday, hovering near a four-month high and looking set to end the week with solid gains. The move reflects persistent Canadian Dollar (CAD) weakness even as the US Dollar (USD) struggles under broader pressures.
CAD under pressure from BoC easing bets
The Loonie continues to face headwinds as markets anticipate another Bank of Canada (BoC) rate cut later this month. In September, the BoC resumed monetary easing, lowering its key rate by 25 bps to 2.5% amid labour market softness and subdued inflation. Traders increasingly see scope for a further cut as domestic data signals economic weakness.
USD weighed by US political and economic risks
The Greenback, meanwhile, remains on the defensive as the US government shutdown drags on and labour market data points to cooling demand. The US Dollar Index (DXY) is trading near 97.50, close to weekly lows. Rate expectations have shifted dovishly, with Fed funds futures pricing an 87.5% chance of 50 bps of easing by year-end, up sharply from 65.4% a week ago, according to the CME FedWatch tool.
Focus turns to ISM Services PMI
Attention now turns to the September ISM Services PMI, due at 14:00 GMT. Consensus sees a reading of 51.7, indicating modest expansion. A weaker-than-expected outcome could reinforce expectations of Fed rate cuts and weigh further on USD/CAD, though CAD’s domestic weakness continues to limit upside potential for the Loonie.
