Canadian Dollar Update – Canadian dollar starts new month defensively

• US government economic data will not be released
• ADP employment raises odds for multiple Fed rate cuts
• US dollar trading defensively, but mixed.

USDCAD open 1.3937, overnight range 1.3933-1.3949, close, 1.3936, WTI 61.40, Gold 3879.46

The Canadian dollar continued its slow grind lower despite a softer US dollar against the other major currencies.

The BoC Summary of Deliberations reinforced negative Canadian dollar sentiment.  It showed policymakers were concerned about falling exports, declining business investment, and a significantly deteriorating labour market. They thought upward momentum in core inflation had stalled, which suggests more rate cuts are on the agenda.

The US government shutdown came as no surprise to markets, which explains the muted reaction in trading yesterday and overnight.

Traders are now bracing for two more consecutive Fed rate cuts, especially after yesterday’s dismal ADP employment data. Payrolls fell by 32,000 in September compared with a forecast of 50,000, and August figures were revised sharply lower, showing 3,000 job losses instead of the 51,000 gains initially reported.

Asian bourses ended on a firm note with the Hang Seng gaining 1.61% and Australia’s ASX 200 up 1.13%. Japan’s Topix slipped 0.24% while mainland Chinese markets were closed.

As of 7:20 am EDT, In Europe, the German DAX rose1.27%, the CAC-40, gained 1.20% and the FTSE 100 is flat. S&P 500 futures are up 0.20%. The US dollar index is 97.59, and the US 10-year yield sits at 4.095%.

EURUSD traded in a 1.1724-1.1759 range with support coming from rising expectations that the Fed will deliver at least two more rate cuts before year end. The market brushed off Eurozone unemployment edging up to 6.3% in August from 6.2%. Reports that Brussels is weighing a 50% tariff on Chinese steel imports added to the backdrop.

GBPUSD drifted in a 1.3468-1.3510 range. Upside momentum may face headwinds with the November 26 UK budget looming and lingering speculation that the Bank of England could cut rates before year end.

USDJPY traded in a 146.60-147.38 band and sits near the bottom of the band in early New York. Lower Treasury yields, renewed expectations for a BoJ rate hike, stronger consumer confidence and political uncertainty ahead of the October 4 LDP leadership vote are pressuring the pair.

AUDUSD traded between 0.6603 and 0.6625, finding a bid despite a disappointing August trade surplus of $1.825 billion, far short of the $6.5 billion forecast and the $6.12 billion posted in July.

There are no Canada or US economic reports today.