Canadian Dollar struggles amid softer domestic outlook and firmer US Dollar

• The Canadian Dollar remains under pressure as weaker domestic sentiment weighs on the Loonie.
• The Bank of Canada's Q3 Business Outlook Survey shows softer confidence and easing inflation pressure
• The US Dollar remains supported as Trump softens his tone on China ahead of trade talks.

The Canadian Dollar (CAD) remains on the defensive against the US Dollar (USD) on Monday, weighed down by weaker domestic sentiment and falling Oil prices. At the time of writing, USD/CAD is trading around 1.4035 as the Greenback holds firm amid cautious optimism over US-China trade talks.

The Bank of Canada (BoC) released its Q3 Business Outlook Survey on Monday, showing a further decline in business confidence as firms continue to face weak demand and easing inflation pressures. The BOS Indicator fell to -2.8 from -2.4 in the previous quarter, with companies reporting softer sales expectations and lower investment intentions.

About 37% of firms plan to increase employment over the next 12 months, while reports of labour shortages and capacity constraints decreased. Fewer businesses expect to raise their selling prices, and input cost expectations have also eased. The survey also revealed that 33% of firms expect Canada to be in a recession over the next year, up from 28% in the previous quarter, while expectations for growth in both domestic and export sales remain subdued amid trade tensions and slower global demand.

Separately, Canada's September Industrial Product Price Index (IPPI) rose 0.8% MoM, driven by higher prices for metals and energy products, while the Raw Materials Price Index (RMPI) climbed 1.7%.

According to the latest BHH MarketView report, the swaps curve implies a 70% probability of a 25-basis-point interest rate cut by the BoC at its upcoming October 29 meeting.

On the US side, the Greenback remains supported after President Donald Trump struck a softer tone on China ahead of this week's trade talks. Trump said he is "not looking to hurt China" but laid out key US demands, including higher Chinese purchases of soybeans, the removal of rare-earth export curbs, and tighter controls on fentanyl.

US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are set to meet in Malaysia this week to restart dialogue following last week's tariff flare-up.

However, expectations of further interest rate cuts by the Federal Reserve (Fed) and the ongoing United States (US) government shutdown, now in its third week, are limiting the Dollar's upside. Traders are now fully pricing in back-to-back 25-basis-point rate cuts at its October and December monetary policy meetings.