USD: Dollar derailed: shutdown stalls momentum
Antonio Ruggiero
Not a great start for the US dollar this month. The government shutdown is set to delay the release of the NFP report, disrupting the upbeat momentum sparked by the upward revision to GDP the other week, and capping further dollar upside for now.
Private-sector payrolls declined by 32,000 in September (ADP report), due at least in part to issues with data analysis. US factory activity also contracted for the seventh consecutive month, with the orders component slipping from 51.4 to 48.9. Overall, the manufacturing index edged up 0.4 points to 49.1 from 48.7, but remains in contraction territory.
The dollar dipped following the release, though not as sharply as expected, given the heavier weight these second-tier indicators carry when top-tier data (like NFP) is unlikely to be published this Friday.
In the absence of key data, we expect the dollar’s price action to remain subdued – weighed down by an uncertain economic outlook and lingering shutdown-related risks – until upcoming macroeconomic releases provide fresh impetus.
CAD: Not an easy path
Kevin Ford
The Bank of Canada (BoC) released yesterday its Summary of Governing Council deliberations, detailing the discussions that led to the September 17, 2025 decision to cut the policy interest rate by 25 basis points to 2.5%. This move was a response to the clear weakening of the Canadian economy, specifically the sharp contraction in the second quarter, driven by a 27% plunge in exports and negative business investment, coupled with a softening labor market where the unemployment rate climbed to 7.1%. While members noted robust household spending as a counterpoint, the overall balance of risks had decisively shifted, with growing evidence that upward pressure on core inflation was finally easing. This combination of a deteriorating economic outlook and diminished inflation concerns provided the necessary justification for the rate cut.
Looking ahead to the upcoming October 29th rate announcement, the central bank’s path is exceptionally difficult to predict. The Governing Council has clearly signaled that they will be adopting a “risk management approach” over a shorter horizon than usual, reflecting the high uncertainty surrounding structural trade shocks. Indeed, market pricing currently places the odds of a further 25-basis-point cut at roughly 55%. This delicate balance stems from persistent, though contained, inflationary pressures, with core inflation still hovering around 3%, offset by the severe downside risks emanating from trade policy volatility and the expected impact of a major federal fiscal stimulus package due to be published in November.
The latest economic data only underscores the severity of the challenge facing the BoC. The S&P Global Canada Manufacturing PMI fell to 47.7 in September 2025 from 48.3 in August, marking the eighth consecutive month of contraction in factory activity. This prolonged slump in Canadian manufacturing, primarily a casualty of US tariffs, has led to steep declines in new orders and output. Although firms reported that input cost and selling price inflation eased significantly, a positive sign for the inflation outlook, the pervasive uncertainty surrounding trade policy continues to erode business confidence and force reductions in staffing levels, reinforcing the view that economic weakness persists.
In the FX market, there’s been little movement. Despite a generally softer U.S. dollar, the USD/CAD has traded within a tight, narrow range this week, holding between 1.389 and 1.395 after breaking above the 1.39 a week ago.
Ultimately, the Bank of Canada remains caught between the need to support a weakening, trade-battered economy and the necessity of keeping the lid on inflation, ensuring the path forward will remain highly data-dependent and subject to the unpredictable winds of global trade.
EUR: Breakout on hold, patience on trial
Antonio Ruggiero
Eurozone inflation came in right on target, wrapping up the latest batch of member-state prints and reinforcing an overall benign price pressure environment. The results were particularly telling, especially after ECB President Christine Lagarde had just pointed to room for further rate cuts in the euro area, stressing that policymakers’ stance is not “fixed.”
While EUR/USD remains supported amid uncertainty surrounding the U.S. government shutdown, the impasse is simultaneously depriving the euro of more durable upside drivers – chiefly, clarity on the U.S. macro backdrop, with the labour market in particular under scrutiny.
The euro urgently needs fresh catalysts – soft U.S. data and a dovish Fed – but the slowdown is instead prolonging the wait for a breakout above $1.18. Over the longer term, EUR/USD has repeatedly rejected a descending trendline. The stalled momentum seen over recent months may coincide with this periodic failure, and it would take better-than-expected macro releases to shift the signal toward a more meaningful bearish pullback.
The Canadian Dollar remains under pressure
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: September 29 – October 3
All times are in EST
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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.
