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

USD/CAD retreats to 1.4240, from highs near 1.4300, turning flat on the daily chart.
The US Dollar rally loses steam ahead of the release of the ISM Services PMI report.
The Loonie has lost more than 3% in a four-week selloff, hammered by Fed-BoC divergence.

Guillermo Alcala FXStreet

The Canadian Dollar (CAD) pares previous daily losses on Monday, as the US Dollar (USD) pulls back from multi-month highs against most peers, with market concerns about higher global debt yields keeping investors away from risk. The USD/CAD pair is trading at the 1.4240 area at the US session opening times, turning flat in the daily chart, after being capped at 1.4293 earlier in the day, the highest level since March 2025.

The turmoil in the global bonds market has been moving currencies in Monday’s Asian and European session, pushing the US Dollar higher amid the EUR/USD weakness. The Euro is back in the spotlight as the escalating borrowing costs in France have spurred fears of some contagion among other EU members, which brings back echoes of the 2009 credit crisis.

This has offset the negative impact from the disappointing US Nonfarm Payrolls report on Friday, which has practically discarded a back-to-back interest rate hike by the US Federal Reserve after the October 27-28 meeting.

US ISM Services PMI is expected to moderate slowdown in September's business activity

In the US calendar on Monday, the highlight is the ISM Services Purchasing Managers’ Index (PMI) report, due at 14:00 GMT. The headline figure is expected to show that the sector partially reversed August's acceleration in September, with the Index pulling back to 55 from 55.4 in the previous month.

Investors will also be attentive to the Final S&P Services PMI. Preliminary data showed that the sector’s activity accelerated to 58.7 in September, its strongest reading in more than five years, from 56.5 in August.

Fed-BoC divergence is keeping the CAD on the back foot

In Canada, the calendar is void on Monday, and investors will await Tuesday's Ivey PMI data and Friday's employment report for more insight into the country’s economic outlook. The CAD, however, has depreciated more than 3% over the last four weeks, as the Fed’s hawkish turn accentuated the monetary policy divergence with the Bank of Canada (BoC).

The BoC has kept its benchmark interest rate steady at 2.25% for already a year, and is not expected to hike it anytime soon. Consumer prices remain above the 2% target, but a somewhat softer labour market and, above all, the economic uncertainty stemming from the trade war with the US will force the central bank to tread cautiously with monetary policy.

Economic Indicator

S&P Global Services PMI

The S&P Global Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector. As the services sector dominates a large part of the economy, the Services PMI is an important indicator gauging the state of overall economic conditions. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for USD.

Economic Indicator

ISM Services PMI

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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