USD: Stagnation with a price twist
ISM Services and Manufacturing PMIs last week were weak. Manufacturing contracted for a seventh consecutive month (49.1), while the services index – released Friday – fell 2 points to 50, a level that signals stagnation. Notably, the prices paid component in services rose to 69.4, one of the highest readings in three years. In contrast, manufacturing prices paid – where inflationary pressure from tariffs is typically expected – actually declined from 63.7 to 61.9, pointing to eased price pressures. The PMIs add to a fragmented set of labour market indicators from private data providers last week, collectively depicting a stagnant labour market, despite some improvement in September relative to August.
Nonetheless, it’s hard to argue the greenback reacted meaningfully to these often-overlooked data points. Investors may be discounting the severity of the shutdown, opting to wait for more substantive directional cues – namely, the release of non-farm payrolls. While the impact has been muted so far, the release of Fed minutes this week and hard macro data from public sources – once the shutdown is lifted – could lend more cohesive meaning to last week’s fragmented broader data landscape.
Our expectation is for a continued cautious tone from the Fed, likely to be reflected in this week’s minutes (Wednesday). Currently, nearly half of the FOMC sees just one or no further cuts by year-end, while the median projection remains at two. With one full cut priced in for October, we expect a near-term lift in the dollar – to strengthen if NFP shows signs of recovery.
CAD: Under pressure
Kevin Ford
Lacking clear, compelling catalysts, the Canadian Dollar remains under pressure. Despite a broadly softer U.S. dollar, the USD/CAD was under pressure last week, trading as high as 1.398, close to its 200-day simple moving average (SMA) at 1.3985.
The CAD’s weakness, however, is a deeper, year-to-date trend; it has exhibited marked underperformance relative to its G10 counterparts, with the decline being most pronounced against key European currencies. This persistent struggle has driven several major currency pairs to notable valuation extremes: EUR/CAD is trading at its highest level since 2009, CHF/CAD has soared to an all-time high, and SEK/CAD stands at its strongest level since 2021. While the Loonie has managed a marginal gain of approximately 3% against the U.S. dollar this year, it nonetheless holds the position of the worst-performing G10 currency on a year-to-date basis.
The upward momentum in the USD/CAD pair has temporarily stalled, yet it critically continues to hold above the 1.39 level, with the upcoming Canadian employment report next Friday standing as the week’s most pivotal data release, poised to significantly shape market expectations for the Bank of Canada’s monetary policy direction ahead of its crucial October 29th decision.
The US government shutdown drags on, meaning another week with key data blackout. That’s keeping FX glued to second-tier indicators and macro headlines to fill the gap. Japan’s surprise leadership shift is already making waves, Sanae Takaichi’s win has sparked talk of reflation, dropped the yen 2%, and sent the Nikkei surging.
Meanwhile, it’s a packed week for central bank chatter. Powell speaks Thursday, but we’ll hear from ECB and BoE heads today, Norges Bank tomorrow, and RBA on Friday. The RBNZ takes the spotlight Wednesday, where a 25bp cut is widely expected.
EUR: No break without payrolls
EUR/USD attempted once again to break above resistance at 1.1750 on Friday, with greater conviction following the weak ISM Services release. Nonetheless, it failed to clear the level, leaving the non-farm payrolls report as the next potential catalyst to make the break a reality.
The euro may have also benefited from modest upside momentum following an interview with President Lagarde, in which she stated she is comfortable with current policy settings, citing broadly stable inflation in the euro area. These remarks contrasted with the more dovish tone she struck earlier in the week at the Bank of Finland’s 4th International Monetary Policy Conference.
Overall, we maintain that the pair continues to show fatigue in pushing higher, trading in a tight and directionless range between 1.1720 and 1.1750 last week, despite several soft US data prints. Had sentiment toward the USD been as negative as it was in the spring, weaker indicators – amplified by the silence surrounding the shutdown – might have generated stronger bullish momentum for EUR/USD.
Looking ahead, a batch of eurozone macro indicators – namely Germany’s industrial production and factory orders, along with eurozone retail sales – will help gauge the region’s economic pulse. Recent data continues to suggest stagnant momentum. Given the ECB’s just re-affirmed hawkish tone, however, only significant downside surprises may prompt a meaningful re-pricing of easing expectations, weighing on the euro. Nonetheless, we expect bearish pressure to build ahead of the FOMC meeting minutes this Wednesday.
EUR/USD begins the week on the soft side, breaking below support at 1.17 as the lack of US data releases further suffocates momentum.
CAD crosses under pressure, Oil extends its decline
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 6-10
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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.
