CAD Slips as BoC Rate Cut Odds Climb to 55%

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3670-1.3920

Euro                 1.5940-1.6190

Sterling            1.8360-1.8610

WTI Oil (opening level) $64.22

The CAD/USD is opening at 1.3799 ( 0.7247 )

The Canadian Dollar (CAD) edges lower against the Greenback as traders weigh the prospects of a Bank of Canada interest rate cut this month. The US JOLTS Job Openings and the Fed Beige Book will be in the spotlight later today.

Markets signal a BoC rate cut is now more likely as tariffs continue weighing down the Canadian economy.

Traders are now pricing in nearly a 55% chance that the Canadian central bank will cut rates in its next decision, up from around a 40% chance last week, according to Reuters. 

Following the anticipated September rate cut, some analysts expect the BoC to reduce interest rates by another 25 basis points (bps) in October and December, bringing the terminal rate to 2.0%. Rising BoC rate cut expectations this year could undermine the CAD and create a tailwind for the pair in the near term. 

Headlines

·    Australia Q2 GDP was out overnight at +0.6% QoQ and +1.8% YoY vs. +0.5%/1.6% expected, respectively. Australian yields at the front end of the curve jumped in response, ith the 2-year yield benchmark up some eight basis points after the data.

·    The August ISM US Manufacturing PMI increased to 48.7 from July's 48.0, missing the forecast of 49.0. It marked the sixth month of contraction, with sharp production drops partly offset by new order rebounds. Employment fell at a slower pace, while shrinking inventories and backlogs indicated weaker demand. Input price inflation eased slightly to 63.7, yet stayed high.

·    A federal appeals court deemed Trump's tariffs illegal, requiring suspension by October 14. Trump will appeal to the Supreme Court, possibly leading to a prolonged legal battle. Tariffs of 10% to 50% were imposed last month. A ruling against them may necessitate renegotiating recent trade deals, potentially disrupting global trade.

·    The US Logistics Manager's Index slightly increased for August to 59.3 from 59.2 in July, driven by rising inventory and warehousing costs. Warehousing capacity growth slowed, while transportation metrics declined, with prices and utilization down and capacity up.

·    U.S. construction spending decreased by 0.1% to $2,139.1 billion, marking the ninth monthly drop. Private spending fell 0.2%, with nonresidential down 0.5%, led by a 1% drop in amusement and recreation buildings. Residential construction rose 0.1%, as single-family increased but multi-family fell 0.4%. Public spending grew 0.3%, driven by residential and gains in conservation and power projects. Yearly spending fell 2.8%.

·    The search for the next Federal Reserve chair begins on Friday and will run into next week, when Treasury Secretary Scott Bessent starts interviewing 11 contenders before compiling a shortlist for President Trump. Among the candidates are Fed Governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, and former Fed Governor Kevin Warsh. 

Key Points

·    Equities: Global markets in cautious tone, with broad-based sell‑offs in equities amid bond‑market jitters, rising yields and tariff uncertainty

·    Volatility: VIX edges up • hedging active • SPX move ±43pts

·    Digital Assets: BTC stable • ETH consolidating • altcoins firm

·    Fixed Income: 30-year yields globally hitting new highs,with exception of the US

·    Currencies: USD firms across the board, sterling weakens

·    Commodities: Gold hovers near record after six-day rally