Dollar climbs to 16-month high as Fed rate-hike bets hold firm

At 1.4240, the USD/CAD exchange rate remains relatively stable on Thursday, experiencing only a slight 0.07% increase. This resilience in the pair is attributed to the prevailing strength of the US Dollar, driven by higher Treasury yields and robust recent economic data, such as a decline in initial jobless claims and a positive ADP report indicating stronger-than-expected job growth.

The US economy also demonstrated solid growth in the second quarter, with GDP expanding at an annualized rate of 2.2%, surpassing previous estimates. Manufacturing activity in the US remains robust, as evidenced by the ISM Manufacturing PMI, which slightly decreased to 54.5 in September from 54.6. Inflation pressures have intensified, with the Prices Paid Index rising, leaving the Federal Reserve with room to maintain a tight monetary policy.

However, expectations of further rate hikes have diminished following lower-than-anticipated core PCE inflation data. The 10-year US Treasury yield stands around 5.32%, supporting the US Dollar, while geopolitical tensions involving the US and Iran continue to influence market sentiment. Conversely, Canada's CAD struggles to gain support from local economic indicators, with the S&P Global Manufacturing PMI decelerating to 51.5 in September, signaling a slowdown in manufacturing expansion.