USD / CAD - Canadian dollar getting hammered

- Canadian CPI is expected to rise 1.8% y/y in September

- Oil prices plunge 8.3% since Friday.

- US dollar starts the session on a mixed note-CAD underperforms.

USDCAD: open 1.3809, 48-hour range, 1.3758-1.3815, close 1.3797, WTI $69.83, Gold, $2653.90

The Canadian dollar is getting crushed beneath the combined weigh of CAD/US interest rate policy divergence and weak domestic data.

The latest Bank of Canada Business Outlook Survey paints a picture of easing inflation and sluggish demand. A solid 72% of firms now expect inflation to settle within the BoC’s 1-3% target over the next two years, a sharp rise from 43% last year. Weak demand and sales persist, with businesses describing conditions as “subdued but stable.” Sales expectations and performance remain soft, unchanged from previous quarters. Hiring and investment intentions are still below historical averages. Overall, the survey suggests ongoing weak demand and a continued unwinding of inflation pressures—setting the stage for a likely 50 bps rate cut at the next BoC meeting.

Today’s Canadian inflation data may seal the rate cut deal, especially if CPI, which is expected to rise 1.8% y/y in September is lower than expected.

The Wall Street Journal reports that Israel will not target Iranian oil facilities when it retaliates for the October 1 attack. That news saw WTI prices tumble 5.31% overnight for an 8.3% plunge since Friday. Monday’s news that OPEC had revised its oil demand growth forecast lower for 2024 and 2025, was compounded by a 3% decline in Chinese crude imports from January to August. Further more, the IEA is also predicting that oil supply will outstrip demand in 2025.

EURUSD saw a modest climb from 1.0885 to 1.0917 after a dip from 1.0937 the previous day. Concerns about a potential US “soft landing” and the Fed’s gradual pace of rate cuts are weighing on the euro ahead of an anticipated 25 bp rate cut from the ECB on Thursday.. German economic sentiment also weakened, with ZEW reporting a fall to 86.9 from 84.5.

GBPUSD traded between 1.3035 and 1.3087, moving higher in early NY trading after a UK employment report. The unemployment rate rose to 4.0%, while average earnings declined. The rally could be short-lived, with expectations of rate cuts from the BoE in November and December.

USDJPY reached 149.84 before pulling back, driven by a drop in US 10-year Treasury yields from 4.14% to 4.07%. Analysts remain divided on whether the BoJ will raise rates by year-end.

AUDUSD traded in a narrow range between 0.6715 and 0.6762, weighed down by disappointment over a lack of stimulus measures from China and general US dollar strength. NZDUSD traded between 0.6073 and 0.6097, as markets await NZ inflation data tomorrow.

There are no top-tier US economic releases today.