USD/CAD Extends Gains Amid Diverging Policy Outlook
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The USD/CAD pair traded near 1.4070[1] in Tuesday’s Asian session, extending its upward momentum as the US dollar strengthens amid a more cautious outlook on Federal Reserve (Fed) rate cuts. It is believed that market sentiment shifted after the Fed’s 25 basis point cut[2] last week, bringing the policy rate to 3.75%–4.00%. Despite the move, Fed Chair Jerome Powell’s hawkish tone[3] and his remarks on a “less dynamic” but still resilient labour market prompted investors to reassess expectations for further easing. The probability of another rate cut in December has slipped to around 70%, down from 93% previously, according to the CME FedWatch Tool.
Market reports[4] point out that the recalibration of Fed rate expectations has supported the greenback broadly, with USD/CAD benefiting from renewed demand for the US dollar as traders price in a longer pause in monetary easing. In contrast, the Canadian dollar[5] remains under pressure from weaker oil prices, which continue to weigh on the commodity-linked Loonie. Persistent concerns over a potential oversupply in global crude markets have undermined energy-linked currencies, reinforcing short-term upside momentum for the pair.
Market commentators[6] point out that the Bank of Canada’s recent 25-basis-point rate cut to 2.25%, its second consecutive easing, highlights policymakers’ focus on supporting growth amid trade-related disruptions. Governor Tiff Macklem’s[7] comments suggested a data-dependent stance ahead of the next policy decision on December 10, leaving room for further adjustments if the outlook deteriorates. The move underscores the policy divergence between the BoC and the Fed, which continues to favour USD strength against the CAD.
Analysts[8] indicate that traders will monitor US economic indicators such as nonfarm payrolls and ISM services data later this week. Any signs of slowing economic momentum could temper US dollar gains; however, as long as Fed officials maintain a hawkish bias, the USD/CAD[9] pair may find continued short-term support above 1.4000, with medium-term risks tied to broader risk sentiment and oil market dynamics.
NZD/USD Slips as Weak China Data Weighs
The NZD/USD pair edged lower to trade around 0.5695[10] in Tuesday's early Asian session as the New Zealand dollar came under renewed selling pressure against the broadly stronger US dollar. It is believed that the downside momentum followed the release of weaker-than-expected Chinese manufacturing data[11], which weighed on market sentiment toward the China-sensitive kiwi. Market reports[12] point out that China’s RatingDog Manufacturing PMI slipped to 50.6 in October from 51.2 previously, missing expectations of 50.9 and signalling a modest slowdown in industrial activity.
Market commentators[13] point out that the soft Chinese data reinforced concerns about slowing regional demand, dampening prospects for New Zealand’s export-driven economy. Meanwhile, the greenback remained supported by the Fed’s hawkish stance[14], even after its second rate cut of the year. While the Fed lowered its benchmark rate to the 3.75%–4.00% range, Fed Chair Jerome Powell[15] emphasised that further easing in December was not guaranteed, leading traders to scale back bets for another cut. This shift in market expectations has kept US yields elevated, lending near-term support to the US dollar and capping upside attempts for NZD/USD.
Market commentators[16] point out that the pair’s losses could remain limited as the ongoing US federal government shutdown, now in its sixth week, threatens to dampen US economic growth. Prolonged fiscal uncertainty could undermine investor confidence in the greenback[17], potentially offering some temporary relief to the kiwi.
Analysts[18] indicate that traders are set to closely monitor upcoming US economic indicators, including labour market data and service sector PMIs, for clues on the Fed’s next policy steps. Weak US data[19] could prompt renewed speculation of rate cuts in early 2026, providing medium-term support for NZD/USD despite current downside pressure.
EUR/USD Extends Losses Amid Fed Uncertainty
The EUR/USD pair extended its decline for the fifth consecutive session and traded near 1.1510[20] in Tuesday's Asian session. It is believed that the sustained weakness in the Euro reflects renewed strength in the US dollar, which continues to attract safe-haven demand amid growing market caution over the Fed’s policy outlook[21] for December. Investors have trimmed expectations for another rate cut this year after Fed Chair Jerome Powell[22] signalled that policymakers might adopt a wait-and-see approach as they assess the economic impact of recent developments.
Market reports[23] point out that market sentiment remains fragile as the prolonged US government shutdown, now in its sixth week, raises concerns about economic activity and consumer confidence. The political stalemate in Congress[24] over a funding bill has left federal workers unpaid, adding to downside risks for domestic growth. While this situation could weigh on the broader US dollar outlook[25] in the medium term, the currency remains supported in the near term by reduced rate-cut expectations and its appeal as a safe-haven asset amid elevated uncertainty.
Market commentators[26] point out that the downside appears limited after the European Central Bank (ECB) held interest rates steady for a third straight meeting in October. Policymakers noted that inflation[27] has eased close to target and that economic growth remains resilient. Recent comments from ECB officials suggest a cautious but stable policy stance, which may provide modest support to the common currency.
Analysts[28] indicate that the attention turns to upcoming US economic data, including jobless claims and the ISM services PMI later this week, which could offer further insight into the health of the labour market and service sector. Weaker readings may temper US dollar gains and help EUR/USD[29] stabilise above key technical support levels near 1.1480.
GBP/USD Steadies as Traders Await BoE Decision
The GBP/USD pair steadied to trade near 1.3120[30] in Tuesday's early trading hours, pausing its recent decline as traders reassessed positioning ahead of key central bank updates. It is believed that despite limited upside momentum, the pair found near-term support around this psychological level, with price action consolidating within a narrow range. Market sentiment remains cautious, reflecting ongoing uncertainty over both US economic performance and the Bank of England’s (BoE)[31] monetary policy outlook.
Market reports[32] point out that the recent US data added modest pressure to the dollar, with the October ISM Manufacturing PMI slipping to 48.7, below forecasts and remaining in contraction territory for an eighth consecutive month. The report’s weak demand components suggest that US manufacturing[33] continues to face headwinds from tighter financial conditions and slowing new orders. However, the broader greenback has retained a mild bid amid cautious risk sentiment and reduced participation during the ongoing US government shutdown, limiting GBP/USD[34] recovery prospects for now.
Market commentators[35] point out that in the UK, the macroeconomic calendar remains light until Thursday’s BoE rate decision. The Monetary Policy Committee[36] is widely expected to maintain the Bank Rate unchanged, likely voting six-to-three in favour of holding steady. While inflation has eased from its 2023 highs, the 3.8% annual reading[37] still exceeds the BoE’s 2% target, suggesting that policymakers will avoid signalling an imminent easing cycle. Any addition of dovish votes, however, could weigh on the pound if markets perceive a growing internal bias toward rate cuts.
Analysts[38] indicate that in the near future, GBP/USD may continue to trade choppily around the 1.3100–1.3200 band as investors await further direction from upcoming US labour and services data later this week. Sustained softness in US indicators could cap dollar strength, but medium-term risks remain tilted toward Sterling weakness amid sluggish UK growth and policy divergence. Overall, the GBP/USD exchange rate is expected to remain range-bound in the near term, with market participants closely monitoring economic signals from both sides of the Atlantic for clearer directional cues.
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