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.

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.