USD: Dollar creeps higher as month-end looms
Section written by: George Vessey
The US dollar index is set to log its second monthly gain of 2025, buoyed by resilient economic data, cautious optimism around trade negotiations, and a hawkish-leaning Federal Reserve (Fed). Options traders have crept back in with fresh bets on further dollar strength, though positioning remains far from ghoulishly aggressive. Whether the dollar’s rebound has legs may hinge on how month-end flows haunt the tape today. Portfolio rebalancing, benchmark tracking, and liquidity shifts often collide at month-end — a volatile brew that can distort short-term trends and amplify price swings.
The dollar’s recent strength also reflects a broader improvement in risk sentiment, helped in part by the Trump-Xi trade truce, which offered a temporary reprieve from geopolitical tensions and reinforced flows into US assets. It would also be a mistake to pin the dollar’s rise solely on the Fed’s path, as evidenced by the delayed spike in the buck. Through Asia and Europe sessions, the greenback was eerily flat — even drifting lower — until a brief bump followed the Bank of Japan’s rate hold and dovish remarks from Governor Kazuo Ueda. The real rally didn’t materialize until New York desks stirred on Thursday, coinciding with a spike in Treasury yields after Meta’s surprise $25 billion bond offering.
Technically, the US dollar index still faces long-term headwinds, with its 200-day moving average sloping downward. But it has convincingly reclaimed its 21-day moving average this month and now eyes a potential test of the 100 threshold. A close above would signal the rally has real bite. Support around 96 has held firm all year, aligning with a long-term ascending trendline that’s been quietly creeping higher since 2010.
In short, the dollar’s recent strength is built on solid fundamentals and tactical momentum — though longer-term risks still lurk in the background.
CAD: Loonie continues under pressure
According to Statistics Canada, real gross domestic product (GDP) fell by 0.3% in August 2025, reversing most of July’s gain and reflecting broad-based weakness across both goods-producing and services-producing industries. The goods sector contracted by 0.6%, marking its fifth decline this year, while services edged down 0.1%—their first drop in six months. The transportation and warehousing sector was hit particularly hard, falling 1.7%, with air transportation plunging 4.6% due to a mid-month strike involving 10,000 flight attendants. Pipeline transportation also declined, driven by reduced natural gas exports to the United States.
Wholesale trade fell 1.2%, led by steep drops in motor vehicle and parts wholesalers (-8.3%) and food, beverage, and tobacco wholesalers (-5.2%). The utilities sector contracted 2.3%, reaching its lowest level since May 2018, as drought conditions hampered hydroelectric generation. Manufacturing declined 0.5%, with durable goods down 0.8% and non-durable goods down 0.2%. In contrast, retail trade provided a bright spot, rising 0.9% thanks to gains in motor vehicle dealers, clothing stores, and sporting goods retailers. Preliminary estimates suggest GDP rose 0.1% in September, pointing to a modest 0.1% increase for the third quarter overall. Official Q3 figures are expected on November 28.
These latest GDP figures underscore the fragility of Canada’s economic momentum heading into the final quarter of the year. While September’s advance estimate points to a modest uptick, the broader picture remains clouded by sectoral volatility and external pressures. Looking ahead, risks remain elevated, particularly around future U.S. trade actions and the upcoming CUSMA review. By declaring 2.25% the “just right” level, the Bank of Canada has signaled a clear pivot from monetary stimulus toward the pressing need for structural reform. As Governor Macklem emphasized this week, Canada’s challenges extend beyond a cyclical slowdown, demanding long-term adjustments. The productivity theme, reiterated again today, is expected to take center stage in November as fiscal policy enters the spotlight with federal budget discussions. With a minority government in power, the outcome of those talks remains uncertain, and could even set the stage for a federal election if consensus proves elusive.
In local FX, a similar setup unfolded month-end to the September double-header between the Bank of Canada and the Fed. Back then, a dovish BoC and a hawkish Fed press conference pushed USD/CAD above 1.40. This time, USD/CAD dipped below 1.39 following the BoC’s expected rate cut, as markets weighed the end of Canada’s easing cycle against a Fed that still has room to normalize in upcoming meetings. However, Powell’s signal that the December meeting isn’t locked for another cut led markets to reprice the odds of a ‘two and through’ scenario, sending USD/CAD as high as 1.401. With the latest GDP figure, the USD/CAD has pushed higher to 1.403. If demand for the U.S. Dollar holds and US labor data doesn’t point to weakness, the Loonie will remain under pressure. In Canada, beyond the federal budget discussions, next week’s employment report is expected to reinforce the central bank’s view of a slowing economy and soft labor market.
MXN: Economy contracts in Q3
Mexico’s economy experienced a slight contraction in the third quarter, with the gross domestic product (GDP) falling 0.3% from the prior three months. The primary drag on the economy was a 2.9% annual decline in the industrial sector, which encompasses mining, construction, and manufacturing. This slowdown occurred amid struggles to attract new investment, both domestic and foreign, largely due to trade uncertainty. While the agriculture, livestock, and fishing industries provided a bright spot, rising by 3.6% in the quarter, analysts are bearish on the near future. They estimate the economy will slow for a fourth consecutive year in 2025, expanding by a mere 0.5%, with growing concerns over a possible recession or economic stagnation resulting from weak investment and prolonged uncertainty.
Despite this economic backdrop, a temporary respite came on the trade front, where President Donald Trump hailed the extension of the tariff truce with Mexico as a positive development, stating that Mexico already pays significant tariffs that benefit the US. Although US importers still face tariffs on specific goods, namely steel, automobiles, and products not covered under the USMCA regional trade accord, President Claudia Sheinbaum has successfully managed to avoid more punitive tariffs from the Trump administration. Trump asserted that the existing tariff rates are sufficient to help incentivize car companies to relocate manufacturing back to the US. According to Sheinbaum, this truce extension is crucial as it allows both sides to continue working toward finalizing a more comprehensive bilateral trade agreement.
In FX, the Mexican peso slipped past 18.5 per US dollar, trading at its lowest level since the beginning of October. This decline occurred as markets began pricing in a more dovish path for Banxico, after Mexico’s GDP contracted 0.3% quarter-on-quarter in Q3, only the second quarterly contraction since early 2021. The peso’s slump, along with that of most emerging-market assets, was accelerated after Federal Reserve Chair Jerome Powell dampened expectations for a December rate cut.
US Dollar gains, Pound suffers, Loonie recovers against G10 peers
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 27-31
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
