Australian and Canadian Dollars Lead Major Currencies on Monday, but the Gains Are Far From Evidence of a Broad Risk-On Rally
Today’s themes:
- Aussie leads: Australian Dollar is the strongest major as China’s Q3 GDP beats at 4.5% and RBA Assistant Governor Christopher Kent challenges the idea that tightening has ended.
- Loonie holds firm: Canadian Dollar has kept much of its strength despite softer core inflation, supported by elevated oil, with Brent around $108.
- France pressures Europe: The French 10-year yield is near 4.88% and pressing 5% after weekend unrest, while the DAX, CAC 40 and FTSE 100 are all down more than 1.2%.
Currency strength is being driven by selective catalysts rather than a generalized improvement in global risk appetite.
Australian and Canadian Dollars are leading major currencies on Monday, but the gains are far from evidence of a broad risk-on rally. Aussie is benefiting from stronger-than-expected Chinese economic data and reduced conviction that RBA tightening has finished. Loonie, meanwhile, has retained much of its strength despite softer Canadian core inflation, supported by elevated oil prices. Yet European equities are falling and French government bond yields are pressing toward 5%, highlighting a sharply uneven market environment.
Currency Heat Map.
The divergence is evident across asset classes. AUD, CAD and NZD occupy the stronger end of the currency performance rankings, while Yen and Swiss Franc lag and Dollar sits closer to the middle. Meanwhile, Germany’s DAX is down 1.29%, France’s CAC 40 has lost 1.44%, and Britain’s FTSE 100 is lower by 1.21%. Oil is retreating, while metals are mixed. Currency strength is being driven by selective catalysts rather than a generalized improvement in global risk appetite.
European Equity Moves
- Germany’s DAX: down 1.29%
- France’s CAC 40: down 1.44%
- Britain’s FTSE 100: down 1.21%
Aussie Leads as China Growth Improves and RBA Tightening Remains Possible
Australian Dollar is the day’s strongest major currency. Its advance extends beyond Dollar, with Aussie also outperforming Euro, Canadian Dollar, New Zealand Dollar and Yen. The broad-based gains suggest that Australian-specific developments, reinforced by China’s economic data, are providing more support than the general currency environment.
China Data: Actual vs Expectations
| Measure | Previous | Forecast | Actual |
|---|---|---|---|
| Q3 GDP (y/y) | 4.3% | 4.4% | 4.5% |
| September retail sales (y/y) | 0.4% | 0.5% | 1.1% |
| Industrial production (y/y) | 5.2% | 5.4% | 5.5% |
The figures suggest firmer economic momentum, although persistent weakness in property and fixed-asset investment continues to limit the breadth of China’s recovery.
Meanwhile, RBA Assistant Governor Christopher Kent’s remarks helped challenge expectations that Australia’s tightening cycle has necessarily ended. Kent acknowledged indications that neutral interest rates are increasing domestically and globally, potentially making the current 4.60% cash rate less restrictive than previously assumed. He described policy as “somewhat restrictive”, while questioning whether the degree of restraint is sufficient.
However, Kent also recognized that Australia’s labor market is loosening faster than the RBA had expected. September employment fell 39.3K, while unemployment reached a five-year high of 4.7%. The deterioration has reduced expectations for another immediate increase, but Kent’s assessment suggests that additional tightening cannot yet be dismissed.
Kent’s Two Signals for the RBA
| Signal | What Kent said | Implication |
|---|---|---|
| Supports further tightening | Neutral interest rates appear to be rising domestically and globally, and policy is “somewhat restrictive” | The 4.60% cash rate may be less restrictive than previously assumed |
| Argues for caution | The labor market is loosening faster than expected: employment fell 39.3K in September and unemployment reached a five-year high of 4.7% | Reduced expectations for another immediate increase |
Markets currently assign roughly 25–30% probability to another hike in November. A further increase is not the base case, but the possibility remains meaningful, particularly if inflation proves more persistent than expected. Australia’s quarterly CPI report on October 28 will be an important test ahead of the November 2–3 RBA meeting.
Canadian Dollar Holds Firm Despite Softer Core Inflation
Canadian Dollar is also outperforming, although its immediate inflation catalyst was less supportive. Canada’s September headline CPI accelerated from 3.0% to 3.1% yoy, undershooting expectations of 3.2%. More importantly, all three Bank of Canada core measures eased. CPI-trim declined from 1.9% to 1.8%, CPI-median from 2.0% to 1.9%, and CPI-common from 2.6% to 2.4%, with all three below forecasts.
The contrast between headline and underlying inflation was largely explained by energy. Gasoline inflation accelerated from 22.8% to 27.8%, pushing overall energy inflation from 15.4% to 19.0%. However, CPI excluding gasoline slowed from 2.4% to 2.2%, reinforcing the picture of moderating broader price pressures despite the higher headline reading.
CAD initially weakened following the release, but the reaction was relatively contained. USD/CAD rose from around 1.4077 before the data to 1.4105 afterward, while Dollar Index also strengthened modestly. Canadian bond yields did not show a corresponding decline, suggesting that the inflation surprise did not trigger an immediate broad-based reassessment of domestic interest rates.
Technically, USD/CAD is testing the 38.2% retracement of the rise from 1.3730 to 1.4298 at 1.4081. The pair has so far found support around this level, with softer CPI limiting further downside without establishing a convincing bullish reversal.
The loonie also continues to benefit from the broader support provided by elevated crude oil prices. Although Brent has retreated on Monday, its substantial advance over recent weeks remains relevant for Canada’s energy-exporting economy. With the Bank of Canada widely expected to hold rates at its October 28 meeting, the next question is whether softer underlying inflation begins to weigh more heavily on CAD or whether the currency can retain its commodity-related support.
Oil Retreats Without Reversing Its Broader Advance
Oil prices are softer on Monday, but the decline has not erased last week’s substantial rally.
Oil Snapshot
- Brent: around $108 a barrel, down approximately 1.55%
- Brent on Friday: gained 3.7% to $109.86
- WTI: closed above $100 on Friday for the first time since September
The renewed rise in prices reflected concerns over global supply disruptions. Middle East tensions continue to support a significant geopolitical risk premium. Attacks on shipping around the Strait of Hormuz, threats to Saudi energy infrastructure and renewed Ukrainian strikes against Russian oil facilities have raised concerns about supply availability.
Monday’s retreat reflects competing expectations that additional Russian crude could enter the market following changes to US sanctions and tariff measures. The oil market is therefore balancing persistent supply-disruption risks against the possibility of improved availability, rather than delivering a clear directional signal.
For CAD, the distinction matters. Elevated crude prices continue to provide a supportive backdrop, but further oil weakness could gradually reduce that advantage. The loonie’s resilience despite softer Canadian CPI is notable, although sustained strength will require support beyond the previous week’s energy rally.
French Bond Yields Approach 5% as Political Risks Pressure Euro
The European picture is more cautious. Euro is under moderate pressure, with EUR/USD trading around 1.1212, down approximately 0.24%. France’s weekend unrest has added another layer of uncertainty to an already difficult political and fiscal situation, just as the government faces important budget decisions.
Saturday’s nationwide demonstrations over living costs and school conditions descended into violence in several major cities, resulting in more than 2,000 arrests and extensive property damage. President Emmanuel Macron responded by calling for consultations with students, teachers, unions and businesses, alongside tougher measures against disorder.
The unrest matters for financial markets less because of its immediate economic cost than because of its implications for fiscal consolidation. The minority government is already struggling to balance spending demands with plans to reduce France’s deficit. Additional political pressure could complicate the budget process and reinforce an existing sovereign risk premium.
French Bond Market Snapshot
- France 10-year yield: around 4.88%, pressing the upper boundary of its recent consolidation
- OAT–Bund spread: around 145bps
- EUR/USD: around 1.1212, down approximately 0.24%
- France Aa3 rating: currently carrying a negative outlook
France’s 10-year government bond yield is approaching a critical 5% threshold, trading around 4.88% and pressing the upper boundary of its recent consolidation. The yield remains well above its 55-day EMA, reflecting the substantial deterioration in French bond-market sentiment since the summer.
The OAT–Bund spread is around 145bps, indicating that investors continue to demand substantial compensation for holding French debt relative to German government bonds. However, a sustained widening in that spread would provide stronger evidence of renewed France-specific fiscal stress than an increase in French yields alone.
A decisive break above 5% would be an important warning that selling pressure in French bonds is intensifying, particularly if accompanied by further widening in the sovereign spread. The threshold is a risk marker rather than a confirmed breakout or predetermined yield target.
The immediate catalysts are Tuesday’s National Assembly vote on the revenue portion of the 2027 budget and Friday’s scheduled Moody’s review of France’s Aa3 rating, currently carrying a negative outlook. Political setbacks or an unfavorable rating decision could amplify pressure on French assets, while progress through the budget process would provide an opportunity for sentiment to stabilize.
Selective FX Strength Is Not a Broad Risk-On Signal
Monday’s currency performance reflects several distinct developments rather than one dominant global risk theme. Australian Dollar is benefiting from China’s stronger economic data and the continued possibility of RBA tightening. Canadian Dollar remains resilient despite softer underlying inflation, while elevated oil prices provide support even as crude retreats.
Europe presents a contrasting picture. Weak equity markets and French sovereign yields approaching 5% highlight persistent financial risks despite the strength of commodity-linked currencies.
For now, the FX market is rewarding selective economic and policy developments, but the divergence between currency strength and European financial-market weakness argues against interpreting the session as a broad recovery in risk appetite.
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FAQ
Why are the Australian and Canadian Dollars leading on Monday?
For separate reasons. Aussie is benefiting from stronger-than-expected Chinese data, including Q3 GDP of 4.5% against a 4.4% forecast, and from RBA Assistant Governor Kent’s remarks that challenge expectations that tightening has ended. Loonie has retained much of its strength despite softer Canadian core inflation, supported by elevated oil prices, with Brent around $108.
Why are French bond yields near 5%?
France’s 10-year yield is around 4.88%, pressing the upper boundary of its recent consolidation after weekend unrest that led to more than 2,000 arrests. The unrest matters mainly because of its implications for fiscal consolidation for a minority government that is struggling to balance spending demands with deficit reduction. A decisive break above 5% would be a warning of intensifying selling, but the level is a risk marker rather than a confirmed breakout.
Is Monday’s currency strength a risk-on signal?
No. AUD, CAD and NZD lead the rankings on selective catalysts, but European equities are falling, with the DAX down 1.29%, the CAC 40 down 1.44% and the FTSE 100 down 1.21%, and French yields are pressing 5%. The divergence between currency strength and European financial-market weakness argues against reading the session as a broad recovery in risk appetite.
Key Takeaways
- AUD and CAD lead the majors on separate catalysts, and the gains do not amount to a broad risk-on rally.
- China’s Q3 GDP accelerated to 4.5% from 4.3% against a 4.4% forecast, and September retail sales rose 1.1% against a 0.5% consensus, supporting Aussie.
- RBA’s Kent suggested the 4.60% cash rate may be less restrictive than assumed, but the labor market is loosening faster than expected, leaving roughly 25–30% odds of a November hike.
- Canada’s headline CPI rose to 3.1%, below the 3.2% forecast, and all three BoC core measures eased, yet CAD weakened only modestly, with USD/CAD rising from about 1.4077 to 1.4105.
- USD/CAD is testing the 38.2% retracement at 1.4081, and Brent near $108 keeps supporting the loonie despite Monday’s 1.55% retreat.
- France’s 10-year yield is around 4.88% with an OAT–Bund spread near 145bps, and a decisive break above 5% would be an important warning.
- The DAX, CAC 40 and FTSE 100 are down 1.29%, 1.44% and 1.21%, while Euro is under moderate pressure near 1.1212.
What to Watch Next
France is the first test: Tuesday’s National Assembly vote on the revenue portion of the 2027 budget and Friday’s Moody’s review of its Aa3 rating, which carries a negative outlook, could determine whether sovereign concerns intensify.
Australian CPI and the Bank of Canada’s policy decision on October 28 will then offer fresh evidence on the monetary outlook for two of Monday’s strongest currencies, followed by the RBA meeting on November 2–3.
