USD/CAD falls to near 1.4100 after pulling back from seven-month highs

• USD/CAD depreciates despite stronger US economic figures released on Wednesday.
• The US Dollar may advance further amid the decreasing likelihood of a Fed rate cut in December.
• The CAD gains as Canada's government boosts capital spending while keeping deficits contained, reinforcing the BoC's ability to maintain rates.

USD/CAD takes a breather after reaching a seven-month high of 1.4140 in the previous session, trading around 1.4100 during the Asian hours on Thursday. The pair holds slight losses as the US Dollar (USD) declines despite a stronger-than-expected US economic data release on Wednesday.

ADP Employment Change in the US climbed by 42,000 in October, compared to the 29,000 decrease (revised from -32,000) seen in September. This figure came in better than the estimations of 25,000. US ISM Services PMI climbed to 52.4 in October, from 50.0 prior and exceeding analysts' forecasts of 50.8.

The US Dollar may regain its ground amid the cautious sentiment surrounding the US Federal Reserve (Fed) policy stance for December. Fed funds futures traders are now pricing in a 62% chance of a cut in December, down from 68% a day ago, according to the CME FedWatch Tool.

Fed Chair Jerome Powell signaled a more cautious approach, waiting for more data, which is complicated by the US government shutdown. Powell said that another rate cut in December is far from certain. However, Fed Governor Stephen Miran suggested that another rate cut could be appropriate in December.

The Canadian Dollar (CAD) receives support as Canada's government ramps up capital spending, keeping deficits low and supporting the Bank of Canada's (BoC) ability to maintain the policy rate at 2.25%, BBH FX analysts reported.

Canada's government increased fiscal spending to support higher capital investment. The budget deficit is now projected at -2.5% of GDP for 2025/26 and -2.0% for 2026/27, compared with -1.3% and -0.9%, respectively, in the December 2024 fiscal update.