USD/CAD steadies amid US-China trade tensions, markets await BoC Governor's speech

The Canadian Dollar (CAD) steadies against the US Dollar (USD) on Thursday as the Greenback remains under pressure amid escalating US-China trade tensions and growing expectations of further interest rate cuts by the Federal Reserve (Fed). At the time of writing, USD/CAD is trading around 1.0438, retreating slightly after touching a six-month high near 1.0479 on Tuesday.

The US-China trade standoff remains at the forefront of investor focus after reigniting late last week, with both sides escalating threats and retaliatory measures. Traders are also assessing prospects of a sectoral trade deal between the US and Canada, as officials seek to de-escalate tensions over autos, steel, and energy exports.

The Loonie’s upside remains constrained by the ongoing slide in Crude Oil prices, one of Canada’s key exports. West Texas Intermediate (WTI) is trading near a five-month low, around $58 per barrel and down nearly 7% so far this month.

Looking ahead, attention turns to the Bank of Canada (BoC), with traders reassessing the odds of another rate cut at the upcoming October 29 monetary policy meeting following stronger-than-expected labor market data. Canada’s September jobs report showed a solid gain in employment, easing pressure on the BoC to act aggressively even as growth momentum softens. Money markets now price roughly a 50-55% chance of a 25-basis-point cut, down from around 70% odds earlier this month. BoC Governor Tiff Macklem is scheduled to speak later on Thursday, and his remarks will be closely watched for fresh policy cues ahead of the meeting.

In the United States, traders largely expect the Fed to cut rates again before the end of the year. The CME FedWatch Tool shows a 97% chance of a 25-basis-point reduction at the October 29-30 meeting and about a 94% probability of another cut in December.

Meanwhile, comments from Fed officials reinforced expectations of further policy easing in the months ahead. Governor Christopher Waller said on Thursday that “cutting rates again is the right thing to do”, noting that not much has changed in the past six weeks and that the neutral rate likely sits about 100-125 basis points below the current Fed Funds Rate. He added that the pace of cuts could be slower if GDP growth remains resilient or the labor market accelerates. Separately, Fed Governor Stephen Miran said the economy is “in a pretty good place” but faces new risks, adding that monetary policy remains too tight.