USD/CAD rebounds toward 1.3800 as US Dollar firms, PMIs data in focus

I’ve watched the loonie struggle for the second straight day as USD/CAD bounces back toward that critical 1.3800 level. The greenback is flexing its muscles across the board, riding the wave of rising Treasury yields. Honestly, I’m not surprised - this global bond sell-off starting in UK Gilts has infected North American markets and everyone’s suddenly piling back into dollars.

Trading around 1.3800 now, up about 0.40% after touching 1.3744 earlier before climbing to a four-day peak. The dollar index is near 98.50, up a hefty 0.85% after bouncing off month-lows. Traders are back in full force after the long Labor Day weekend, and they’re clearly betting on dollar strength.

Now we’re staring down manufacturing data from both sides of the border. The US numbers should show S&P Global Manufacturing PMI holding at 53.3, while ISM might tick up to 49.0 - still contractionary but improving. I’ll be watching those sub-indices closely - employment, new orders, and prices paid will tell us what’s really happening with labor markets and inflation.

Canada’s manufacturing sector looks even worse, coming off a dismal 46.1 reading that marked six straight months of contraction. No surprise there - trade headwinds and weak domestic demand are crushing Canadian factories.

Friday’s the real showdown though - dual labor reports that could determine monetary policy on both sides. The US jobs report will practically dictate whether the Fed goes with a standard 25bp cut or something more aggressive. Meanwhile, Canada’s employment numbers will shape BoC expectations for their September 17 meeting, especially after that unexpected GDP contraction in Q2 that has everyone talking about deeper rate cuts.

The contrast between these economies is becoming more pronounced by the day, and I’m increasingly skeptical about the loonie’s prospects against this backdrop of diverging economic fortunes. The data this week could either confirm my suspicions or force me to reconsider my bearish CAD outlook.