USD/CAD Strengthens Ahead of Key Inflation Data

The USD/CAD pair extended its upward momentum and traded near 1.4020[1] in Friday's Asian session after modest gains in the previous session. The advance of the pair is believed to signify revitalized US dollar strength, as traders remain reserved prior to the upcoming September US inflation[2] report. The data would give an important clue as to what the Federal Reserve (Fed)[3] will do next, especially as the US government shutdown nears 10 years of operation that is still affecting economic reporting and market sentiment.

Market reports[4] indicate that the greenback also received other reinforcements in the political factors as the US President Donald Trump expressed optimism in achieving various trade deals with the Chinese President, Xi Jinping via their meeting in South Korea. White House acceptance of the bilateral discussions on October 30 on the margins of the APEC Summit added short-term confidence to the US-China relations and strengthened the dollar against key pairs.

Market reports[5] point out that the US government shutdown, which is currently in its 24th day, continues to undermine medium-term confidence in the US dollar. The Fed's policy outlook[6] may become more complex due to the limited insight into US economic performance caused by the delay in key data like retail sales and Nonfarm Payrolls (NFP). Sustained dollar upside in the upcoming sessions may be limited by volatility brought on by ongoing uncertainties around fiscal operations.

Analysts[7] indicate that the West Texas Intermediate (WTI) dropped to about $61.00 per barrel after three days of increases, indicating that the Canadian currency is still under pressure from declining crude oil prices. However, concerns over disruptions to supply in the wake of further US sanctions on major Russian energy companies may limit the downside. Although broader risk dynamics and postponed economic data releases may moderate bullish momentum[8] in the medium term, short-term mood generally favours USD/CAD growth.

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GBP/USD Struggles Amid Mixed Data And Uncertainty

The GBP/USD pair traded near 1.3300[9] in Friday's early session, struggling to extend its modest recovery amid a cautious market mood and a broadly steady US dollar. After failing to hold gains above the crucial 1.2700 level earlier in the session, the pair is believed to have found intraday support in the 1.2650 range. As traders await new support from upcoming US economic data[10], such as the Core PCE Price Index, the Fed's preferred inflation indicator, the recent recovery appears limited.

Market commentators[11] point out that the expectations that the Fed may start lowering policy in early 2025 have been reinstated by the weakness in recent US data, especially softer retail sales and a pullback in labour market indicators. The dollar is resilient in the short run, though, as aggressive rate-cut bets are still restrained by the Fed's conflicting signals. The Bank of England's (BoE)[12] cautious approach, which emphasises the need for persistent inflation advancement before considering rate cuts, continues to exert pressure on the pound.

Technically, market observers[13] suggest the pair continues to trade in a narrow range, with the 50-day Exponential Moving Average (EMA) at 1.2620 and immediate support located close to 1.2650. A challenge of the mid-October low at 1.2575 would be possible if there is an obvious move below these levels. On the upside, 1.2720 is the first resistance level; a strong move above this might open the door to 1.2775.

While short-term sentiment remains slightly positive due to low US yields, analysts believe the medium-term outlook for GBP/USD[14] is cautious. Ahead of key macroeconomic developments, the pair may struggle to establish a long-term directional bias[15] due to persistent economic uncertainty and inflation concerns on both sides of the Atlantic.

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NZD/USD Steadies As Traders Await Inflation Data

The NZD/USD pair stayed stable and traded around 0.5755[16] in Friday's early Asian trading, as market participants anticipated the delayed release of the US Consumer Price Index (CPI) for September. It is believed that the pair has had limited volatility in recent sessions, with traders cautious to take on aggressive positions ahead of inflation data, which could impact expectations for the Fed's[17] next policy move. A weaker CPI data may bolster forecasts on a lengthy pause in Fed tightening, potentially weakening the US dollar and offering short-term support to the Kiwi.

As investors await the outcome of the high-level US-China[18] trade talks that will take place in Malaysia later today, analysts observe that overall market sentiment continues to remain cautious. Crucial bilateral trade issues are the focus of the fifth round of talks[19], which also includes US Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer, and China's Vice Premier He Lifeng. While more tensions could have the reverse effect, any encouraging indicators could increase risk appetite and support currencies connected to China, such as the New Zealand dollar.

Market reports[20] point out that the current US government shutdown has approached the 24th day and that it is the longest federal funding lapse on record. The extended stalemate in congress[21] and recurrent failure to approve stopgap funding legislation have fuelled fears of possible economic backlash. These concerns, in addition to anticipations of weaker US data, could limit the additional gains in the Greenback in the short-term.

Technically, analysts[22] point out that the first resistance of the pair is observed at 0.5780, and the first support is observed at 0.5730. Although short-term sentiment is marginally positive in the face of US economic headwinds, the medium term perspective is still marred by issues of global growth and trade uncertainty.

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USD/JPY Steady Amid Mixed Economic Data Outlook

The USD/JPY pair traded in a tight range around 152.00[23] in Friday’s European session, consolidating after modest overnight gains. The resilience of the pair is believed to be a sign of cautiousness among traders before the release of major economic data in the US as near-term dollar strength[24] is considered in relation to the probability that the US growth momentum may be lagging. The yen, on the other hand, has continued to be under pressure because the Bank of Japan (BoJ)[25] has continued its accommodative policy despite the forthcoming increase in global yields.

Market commentators[26] point out that the attention of investors is shifting to the next US Core PCE Price Index and the GDP figures that may provide new information on the Fed policy path. The recent manufacturing and housing data[27] have raised expectations of further tightening with weaker than expected manufacturing and housing rates driving Treasury yields a little lower. The dollar is however widely supported by the safe-haven demand and relative rate quality and USD/JPY[28] is very much bid higher than its short-term support of about 149.80.

Technically, analysts[29] point out that the fact that the two could not decisively fall below 150.00 is a sign of still being bullish in the short-term but the momentum towards the upsides is likely to be decelerating. Resistance is observed at around 151.20 and a long-term US weakness will prompt a corrective pullback back to the range of 149.00 to 149.50. It is believed that the investors are on the lookout for any verbal or policy actions by Japanese authorities[30] in a case where the depreciation of the yen gains pace.

Analysts^[31] note that the balance of risks in the medium term would favour moderate recovery in the yen when US growth figures remain underwhelming to expectations, which may lead to a more dovish tone on Fed. Meanwhile, USD/JPY^[32] might probably operate within its existing range, direction being dependent on the short-term economic releases and changes in global risk sentiment.

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