Forex News

• USD/CAD extends its decline as broad US Dollar weakness supports the Canadian Dollar.
• Falling US Treasury yields weigh on the Greenback despite expectations of further Fed tightening.
• Markets expect both the Fed and BoC to leave interest rates unchanged in October.

USD/CAD extends its decline on Friday as broad US Dollar (USD) weakness lifts the Canadian Dollar (CAD) to its highest level in more than two weeks. At the time of writing, the pair trades around 1.4138, after reaching 1.4299 on Wednesday, its highest level since April 2025.

The Greenback comes under pressure as concerns over AI-related investments weigh on equities and encourage investors to move into government bonds, pushing US Treasury yields lower and reducing the appeal of Dollar-denominated assets.

The benchmark 10-year US Treasury yield trades near 5.08%, close to three-week lows. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, hovers around 101.65 after climbing to an 18-month high of 102.94 earlier this week.

The risk-off sentiment overshadows a hawkish Federal Reserve (Fed) outlook following this week’s stronger-than-expected US inflation reports. The Consumer Price Index (CPI) rose 0.6% month-on-month in September, accelerating from 0.4% in August and marking its largest monthly increase since April. The Producer Price Index (PPI) increased 1.3% in September after rising 0.5% the previous month, recording its biggest monthly advance since March 2022.

Higher Oil prices remain a key source of inflation pressure since the Middle East war began in late February. With US-Iran negotiations showing little progress and Saudi-Houthi tensions escalating, inflation could remain above the Fed’s 2% target for longer.

Fed officials have shown little urgency to raise interest rates again this month following September’s 25-basis-point increase. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh avoided committing to a policy decision, saying, “I don't prejudge meetings.”

The CME FedWatch Tool shows traders pricing in a 15% probability of a rate hike at the October 27-28 meeting and a 90% chance of an increase in December.

On the Canadian Dollar side, traders anticipate a rate hike in December but expect the Bank of Canada (BoC) to leave rates unchanged in October, as it has throughout this year. With underlying inflation near the central bank’s 2% target and growing slack in the labour market, there is little reason for the BoC to raise interest rates in the near term.

BoC seen staying on hold as Canada inflation and survey data test energy shock

Economists at Royal Bank of Canada say upcoming Canadian inflation figures and the BoC’s Q3 Business Outlook Survey “will be watched closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy.” RBC argues these releases “will serve as key inputs for the BoC’s next interest rate decision on Oct. 28,” with policymakers “wary that high oil prices could spill beyond gasoline prices into non-energy components and/or feed into rising business and consumer inflation expectations.” Against that backdrop, the bank notes that “for now, we continue to expect a somewhat contentious trade-off between inflation and growth risks to keep the BoC uncomfortably on hold through the rest of 2026.”

Scotiabank’s Global FX Strategy team notes EUR/USD is supported by modest narrowing in front-end Eurozone–US spreads following dovish-leaning comments from Fed Chair Warsh. French OAT/Bund spreads remain wide but are seen as a limited driver for the Euro. The bank estimates fair value at 1.1285 and highlights a potential bullish weekly reversal if late-week gains are sustained.

Euro lifts on spread dynamics and charts

"The French government bond rout has steadied over the past week, holding the 10Y OAT/Bund spread around 135-140bps – wide and wider than other, similarly-rated EZ sovereign credits but still well below the peaks seen during the 2011 Eurozone bond crisis."

"The EUR’s relationship with Eurozone sovereign spreads tends to be episodic and other factors appear to be a more significant influence on FX currently. Warsh’s dovish by omission comments on the policy outlook earlier have allowed for a minor narrowing in front-end EZ/US spreads and lifted the EUR."

"At the margin, OAT tensions help tilt ECB risks away from hiking at the end of the month but are unlikely to influence the December decision (a 25bps hike is all but fully priced in). We estimate EUR/USD fair value at 1.1285."

"Bullish – A solid rebound from long-term retracement support in the low 1.11s (50% retracement of the EUR’s 2025/26 rally from the 1.01 area) earlier this week and gains through noted resistance at 1.1240/50 are setting the EUR up for a potentially bullish weekly reversal."

"This will be contingent the EUR sustaining late week gains through the close of business today. Intraday support is 1.1245/50"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The Euro gains 0.32% on Friday, extending its recovery from a 16-month low reached earlier this week.
• A sell-off linked to artificial intelligence concerns weighs on the US Dollar, supporting the currency pair.
• Persistent US inflation and expectations of further Federal Reserve tightening could limit the Euro's gains.

EUR/USD extends its recovery on Friday, trading around 1.1255 at the time of writing, up 0.32% on the day. The Euro (EUR) continues to strengthen against the US Dollar (USD), rebounding from a 16-month low of 1.1113 reached on Wednesday. The recovery is mainly supported by renewed weakness in the Greenback amid concerns surrounding the Artificial Intelligence (AI) sector and a broader reassessment of risk in global financial markets.

The US Dollar Index (DXY), which measures the Greenback's performance against a basket of six major currencies, trades around 101.65 after reaching an intraday low of 101.58. The index retreats significantly from its yearly high of 102.94 recorded earlier this week, providing additional support to EUR/USD.

The US Dollar's decline comes as investors reassess valuations and growth expectations in the AI sector, triggering selling pressure across financial markets. This shift in sentiment appears to be weighing on the US currency, despite a macroeconomic environment that remains broadly supportive of higher US interest rates.

Indeed, the latest US inflation figures, released earlier this week, exceeded market expectations, highlighting persistent price pressures above the Federal Reserve's (Fed) 2% target. Rising energy costs, partly driven by the ongoing conflict in the Middle East, continue to complicate the inflation outlook and reinforce expectations of further monetary tightening.

Geopolitical tensions remain an important source of uncertainty. Negotiations between the United States (US) and Iran remain deadlocked, while tensions between Saudi Arabia and Yemen's Houthi movement continue to escalate. These developments raise concerns about potential disruptions to energy supplies, which could sustain inflationary pressures in the coming months.

Against this backdrop, investors increasingly anticipate another interest rate increase by the Fed before the end of the year. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh maintained a cautious approach to monetary policy communication, avoiding any commitment regarding upcoming decisions. "I don't prejudge meetings," Warsh said, emphasizing the central bank's reluctance to provide explicit forward guidance.

According to the CME FedWatch tool, markets currently assign a 15% chance to an interest rate increase in October, compared with an 89% chance of a hike in December.

This divergence between the US Dollar's short-term weakness and expectations of tighter monetary policy could limit the EUR/USD recovery. While concerns surrounding the AI sector currently favor the Euro, persistent inflation and the prospect of higher US interest rates remain potential sources of support for the Greenback.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1253, holding above both the 100-period and 200-period simple moving averages (SMAs) at 1.1194 and 1.1204, which reinforces a bullish near-term bias. The pair is also comfortably above nearby horizontal support at 1.1215, while the Relative Strength Index (14) at 63.8 stays in positive territory, suggesting sustained upward momentum rather than overbought exhaustion at this stage.

On the topside, immediate resistance emerges at 1.1270, with a subsequent hurdle at 1.1312, where a break would open the way for a more extended advance. On the downside, initial support is seen at 1.1215, followed by the 200-period SMA at 1.1204 and the 100-period SMA at 1.1194, ahead of deeper structural floors at 1.1150, 1.1100 and 1.1050, which should limit any corrective pullbacks while the broader bullish tone persists.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Societe Generale highlights that the Chinese Yuan (CNY) is trading at its strongest level since 2022, despite IMF estimates suggesting it remains significantly undervalued. The bank links this to domestic imbalances and a K-shaped recovery, noting mixed inflation dynamics and strong export performance. Their economists see China comfortably meeting its 2026 growth target with incremental easing, with key data and policy speeches due soon.

CNY strength versus undervaluation signals

"The CNY is now trading at the strongest level since 2022. According to IMF estimates, the undervaluation of the yuan is in the range of 17.3% to 25.3%, with a midpoint of 21.3%. This reflects underlying domestic imbalances."

"Headline inflation inched up to 0.9% in September, but core was unchanged at 1.0%. Factory gauge PPI inflation accelerated to 5.5% in September from 3.8% in August, indicating the struggle of producers to pass on higher costs. Exports jumped 29.6% yoy, boosting the trade surplus to $133.53bn in September."

"Our economists believe China can comfortably achieve its 2026 growth ambition of 4.5-5.0% with some incremental easing."

"3Q GDP and September activity data is due next week. PBoC governor Pan Gongsheng and NFRA head Ding Xiangqun will deliver keynote speeches at the Financial Street Forum starting 19 October."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Nordea strategists note EUR/GBP has traded between 0.84 and 0.87 since late February, with recent British Pound (GBP) gains helped by external factors. They highlights diminished carry appeal as the Bank of England (BoE) holds rates at 3.75%, resilient UK growth, and a crucial Autumn Budget Bill. A November hike may support GBP, but fiscal missteps could push yields higher and weaken the Pound.

Autumn Budget seen as key risk

"EUR/GBP has traded in the range 0.84-0.87 since late February when the conflict in the Middle East escalated."

"The GBP has gradually lost its carry attractiveness with the Bank of England maintaining its policy rate at 3.75% this year."

"Economic performancehas been resilient amidst the geopolitical turbulence with GDP growth averaging +0.6% quarter-on-quarter this year."

"The Autumn Budget Bill, due to be presented on October 28th, will be the biggest challenge to date for Premier Minister Burnham and Finance Minister Healey."

"There is a looming risk that markets could be dissatisfied with the fiscal measures aimed at reducing the budget deficit, which could push yields higher and weaken the pound."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Scotiabank strategists Shaun Osborne and Eric Theoret report the Canadian Dollar (CAD) modestly stronger versus the US Dollar, helped by firmer Bank of Canada rate expectations and narrowing US–Canada yield spreads. Fair value for USD/CAD is estimated close to spot around 1.4140. Technically, the pair has reversed sharply from recent highs, with support seen down toward 1.40 and resistance now above 1.42.

Loonie benefits from spread narrowing

"Rate expectations have firmed modestly on the week, delivering a welcome narrowing in US-Canada yield spreads in a manner that has pressured our USD/CAD FV estimate over the past week or so. FV is currently estimated at 1.4140, largely closing the gap to spot."

"The CAD is entering Friday’s NA session with a modest gain, up 0.2% vs. the USD while showing losses on the crosses against most of the G10 currencies in an environment of broad-based USD weakness and a market tone that is suggestive of risk appetite."

"Neutral/bearish – the recent bearish turn in USD/CAD is notable, with a sharp reversal from local peaks around 1.4300."

"The extension below 1.4200 is important, with a move that has seen a sharp moderation in bullish momentum dragging the RSI back to the neutral threshold at 50. We see limited support between current spot and 1.40. Resistance is now expected above 1.4200."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Royal Bank of Canada’s (RBC) Nathan Janzen analyzes how higher Oil prices are boosting Canada’s real gross domestic income much faster than GDP, largely via export revenues. He highlights that Oil producers and resource-rich provinces capture a disproportionate share of the windfall, while most households, especially in net Oil-importing regions, face higher fuel costs without matching income gains.

Oil windfall and uneven gains

"Higher oil prices boost Canada's purchasing power, but the gains are concentrated. Real gross domestic income grew 3.1% year-over-year in Q2-nearly triple the pace of real GDP growth-as a 46% surge in oil prices added roughly $12 billion per quarter to export revenues."

"Oil producers and resource-rich provinces capture disproportionate share of the initial windfall. Corporate profits drove the latest increase in national income, with oil and gas extraction accounting for nearly 30% of the gain in non-financial industry net income, while provincial royalties and taxes funnel revenues primarily to energy-producing regions."

"Most households face higher costs without offsetting income gains. Canadians spent an estimated $2.6 billion more on motor fuel in Q2 than a year ago-about $150 per household-to buy 3% less fuel, with the burden falling hardest on net oil-importing provinces."

"The uneven regional impact complicates monetary policy. The BoC controls only one interest rate for the entire country, and while higher oil prices are likely neutral to slightly positive for overall growth, sustained elevation risks feeding into broader inflation pressures as global supply chains tighten."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Norman Liebke at Commerzbank highlights that Brazil’s presidential run-off on 25 October between Lula da Silva and Flavio Bolsonaro is closely watched by markets. A Bolsonaro victory would likely bring more market-friendly, fiscally conservative policies and closer ties to the United States. The Brazilian Real has already appreciated, but faces downside risk if Bolsonaro cannot fully implement his agenda due to parliamentary opposition.

Run-off outcome and FX implications

"In the run-up to the run-off on 25 October, market participants are likely to focus initially on which candidate receives the backing of those eliminated in the first round."

"In particular, Bolsonaro has announced plans for greater fiscal consolidation and a generally more market-oriented economic policy in order to rein in Brazil’s high debt ratio of almost 83% of GDP."

"In that event, there would likely be a significant shift in economic and foreign policy compared with the current government."

"Rising chances of a Bolsonaro victory would tend to provide further support for the real."

"However, this would also create considerable downside risk if Bolsonaro were able to implement his plans only partially, or not at all, due to opposition in parliament."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

DBS Group Research economist Radhika Rao reviews the Reserve Bank of India’s multi-layered strategy to support the Rupee in 2026. She notes recent appreciation versus the Dollar following intervention, regulatory and liquidity steps, but highlights persistent pressures from high Oil prices, capital flow weakness and a firm Dollar. Rao sees limited scope for sustained INR strength and expects gradual depreciation depending on global conditions.

RBI’s multi-layered FX strategy

"The Reserve Bank of India (RBI) has adopted a multi-layered defence strategy to support the rupee this year. This has entailed a combination of outright intervention in spot/ forwards, regulatory action, liquidity steps, administrative measures and moves to curb import-related dollar demand."

"Authorities are likely not done yet and remain ready to take further action, as required. RBI Governor Malhotra reiterated the authorities’ serious intent of stabilising the currency in a recent interview (Moneycontrol, 13 Oct), emphasising that “The RBI is determined to do whatever is necessary to ensure orderly movement in the foreign exchange market,”."

"Despite these measures, we see limited room for sustained INR appreciation on grounds of manufacturing/ trade competitiveness. A challenging flows portfolio flows outlook leaves the door open to further gradual rupee depreciation subject to global developments, with high sensitivity to oil price movements and risk sentiments."

"In 2026, markets face the spectre of elevated oil prices, geopolitical uncertainty, global competition for capital, a firm dollar (DXY appreciated +3.8% YTD), and US inflation/ deficits which have settled at levels much higher than pre-pandemic years. This has pushed up UST yields, and the US Fed kicked off its rate-hike cycle in Sep26."

"Against this backdrop, the RBI is pursuing the same objective, i.e., to ensure rupee stability, but the nature of the battle differs. The defence strategy has shifted from ‘crisis management’ mode in 2013, due to weaker domestic macroeconomic balances (a wide current account gap, high inflation, a lower reserve buffer, and wide fiscal deficits), to a ‘terms-of-trade shock and impact of a firm dollar’ in 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)