USD/CAD trades firmly near 1.3970 ahead of US ISM Services PMI data

• USD/CAD exhibits strength near 1.3970 amid weakness in the Canadian Dollar.
• The BoC is expected to cut interest rates again in the policy meeting later this month.
• US government closure and slowing job demand have kept the US Dollar on the back foot.

The USD/CAD pair demonstrates strength near a four-month high around 1.3970 during the European trading session on Friday. The Loonie pair appears poised to close the week on a positive note, despite the US Dollar (USD) remaining on the back foot, which suggests significant weakness in the Canadian Dollar (CAD).

The Canadian currency has remained under pressure as traders remain increasingly confident that the Bank of Canada (BoC) will cut interest rates again in the policy meeting later this month.

In September, the BoC resumed its monetary easing campaign and reduced its key borrowing rates by 25 basis points (bps) to 2.5% in the wake of significant weakness in the job market, with inflationary pressures remaining under control.

Meanwhile, the US Dollar (USD) has been under pressure due to the United States (US) government shutdown and worsening job market conditions. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades vulnerably near the weekly low around 97.50.

Cooling US labor demand has prompted bets supporting interest rate cuts by the Federal Reserve (Fed). According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 50 bps in the remainder of the year has increased to 87.5% from 65.4% seen a week ago.

In Friday’s session, investors will focus on the US ISM Services PMI data for September, which will be published at 14:00 GMT. The ISM Services PMI is expected to have grown at a moderate pace to 51.7%.