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• USD/CAD weakens due to weaker employment data on Wednesday.
• The lower US Treasury yields exert pressure on the US Dollar.
• BoC is expected to go for another rate hike by the end of the year.

USD/CAD retreats from a seven-month high, trading lower around 1.3730 during the Asian trading session on Thursday. The pair receives downward pressure following the extended losses in the US Dollar (USD), which could be attributed to the downbeat US employment data on Wednesday.

In September, the US ISM Services PMI decreased from 54.5 to 53.6, aligning with expectations. The ADP Employment Change for the same month increased by 89,000, falling below the market consensus of 153,000 and marking the lowest level since January 2021.

US Dollar Index (DXY) retreats from an 11-month high, propelled by the pullback in US bond yields. The DXY is currently trading lower around 106.50. Nevertheless, market caution regarding the US Federal Reserve's (Fed) interest rate trajectory may lend support to the USD/CAD pair.

The likelihood of the Fed’s higher interest rates for an extended period propelled US yields to multi-year highs before experiencing a rebound. The 10-year US Treasury yield, which peaked at 4.88% on Wednesday, the highest since 2007, stands at 4.71% by the press time.

Traders will likely pay close attention to the upcoming Jobless Claims and Nonfarm Payrolls on Friday. Favorable figures in these reports could stimulate additional gains for the USD and increase volatility in the bond market.

On Canada’s side, S&P Global Manufacturing PMI data revealed a decline from the previous reading of 48.0 to 47.5 in September.

Bank of Canada Deputy Governor Nicolas Vincent said that Canadian businesses, influenced by the pandemic, have implemented larger and more frequent price changes, passing on elevated costs to consumers, which could advance inflation.

Vincent's remarks supported Canadian bond yields, with market sentiment indicating an ongoing expectation for another rate hike from the Bank of Canada (BoC). The potential for one more rate hike this year could offer crucial support to the Canadian Dollar (CAD), as reflected in a 65% probability in money markets.

However, the Loonie faced downward pressure as Crude oil prices followed the downward traction, a key commodity for Canada as a leading oil exporter to the US. Despite the weaker US Dollar (USD), West Texas Intermediate (WTI) Crude Oil struggled to show positive momentum, with the spot trading around $83.50 per barrel at the moment.

Looking ahead, market participants will monitor the release of the Canadian Ivey Purchasing Managers Index (PMI) for September, followed by the job reports on Friday.

USD/CAD: ADDITIONAL IMPORTANT LEVELS

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