Canadian Dollar bounces up as US Dollar loses steam with services PMIs in focus

The Canadian Dollar (CAD) rebounds on Monday as the US Dollar (USD) loses momentum against most peers, amid worries about rising global debt yields and reduced market participation. The USD/CAD pair hovers around the 1.4240 level, trading sideways after touching a high of 1.4293 earlier in the session, the highest since March 2025.

The volatility in global bond markets has influenced currency movements in Asia and Europe, leading to a US Dollar rise as the Euro gains attention due to French borrowing cost concerns, reminiscent of the 2009 credit crisis. This has partly offset the adverse effects of the underwhelming US Nonfarm Payrolls report released on Friday, eliminating the prospect of consecutive interest rate hikes by the US Federal Reserve after the October 27-28 meeting.

On Monday's US economic calendar, the central focus is the ISM Services Purchasing Managers’ Index (PMI), scheduled for release at 14:00 GMT. Market participants anticipate a slight decline in the headline figure from 55.4 in August to 55 in September, indicating a partial reversal of August's acceleration. Investors will closely monitor the Final S&P Services PMI, with preliminary data showing a strong sector expansion to 58.7 in September, the highest since 2019, compared to 56.5 in August.

Canada's economic landscape remains quiet on Monday, with investors awaiting the Ivey PMI data released on Tuesday and the employment report due on Friday for additional insight into Canada's economic situation. Over the past four weeks, the CAD has weakened by more than 3%, as the US Federal Reserve's more aggressive stance has accentuated monetary policy differences with the Bank of Canada (BoC), which has held its benchmark rate at 2.25% for a year and shows no anticipated rate hikes soon.

Consumer prices remain above the 2% target, but a softer labor market and, most importantly, trade war uncertainty with the US are prompting the central bank to approach monetary policy with caution. The S&P Global Services Purchasing Managers Index (PMI), published monthly, gauges US services sector activity, a critical component of the overall economy due to its dominance.

Derived from surveys of senior executives at private-sector services companies, the PMI reflects changes in current month conditions relative to the previous month, offering insights into potential shifts in official data series such as GDP, industrial production, employment, and inflation. A reading above 50 signifies expanding services sector activity, a bullish signal for the USD.

Conversely, a reading below 50 indicates declining services sector activity, considered bearish for the USD. The ISM Services PMI, released monthly, is a leading indicator of US services sector business activity, which constitutes the majority of the economy. Obtained from a survey of supply executives across the US, the index reflects changes in current month activity compared to the previous month, anticipating changes in official data series like GDP, industrial production, employment, and inflation.

A figure above 50 suggests the services economy is generally expanding, a bullish sign for the USD. A figure below 50 indicates services sector activity is generally declining, seen as bearish for the USD. The Institute for Supply Management (ISM) Services PMI, released monthly, provides a leading indicator of US services sector business activity, which comprises most of the economy.

Derived from a survey of supply executives across the US based on information collected within their respective organizations, survey responses reflect changes in current month conditions compared to the previous month. A reading above 50 indicates the services economy is generally expanding, a bullish sign for the USD. A reading below 50 suggests services sector activity is generally declining, considered bearish for the USD.

The ISM Services PMI reveals current conditions in the US service sector, historically a significant contributor to GDP. A reading above 50 indicates expansion in services sector economic activity, a bullish signal for the USD. Stronger-than-expected readings typically bolster the USD against its rivals. Additional data points, such as the Employment Index and Prices Paid Index, are closely watched by investors to gain further understanding of the labor market and inflation dynamics.

Graduated in Communication Sciences from the University of the Basque Country and the University of Amsterdam, Guillermo has been working as a financial news editor and copywriter for various Forex-related firms, including FXStreet and Kantox.