On Tuesday, the Bank of Canada will announce whether they find it necessary to cut interest rates by 25bp to 4.25 percent, as downside risks to growth continue to mount and credit markets remain tight.

It appears that evidence is pointing in favor of a reduction in the federal funds rate, and the FX, bond, and equity markets will likely continue to reflect that if ISM manufacturing is released in line with or worse than expectations.

It would not be surprising to see the USD/CAD pair fall down towards 0.9500 in coming days. However, Canadian economic data may limit losses as GDP for the third quarter is expected to slow, giving the Bank of Canada reason to consider cutting rates next week.

The US dollar, equity markets, and Treasury yields could stand to gain as annualized GDP for Q3 is expected to be revised higher on Thursday.

US economic data this week is likely to highlight the mounting recession risks that have plagued the greenback and equity markets.

Government bonds have rocketed higher while the Japanese yen currency crosses have tumbled, making it very clear that risk aversion remains the primary driver of the markets and that lower volumes will only exacerbate large moves.

There are well-warranted concerns that global inflation will rise significantly, and the prospect of increased price pressures only compounds the problems that the BOE already faces as they contend with uncertainty surrounding the ongoing reappraisal of risk in the financial markets.

Various FOMC voting members have made comments suggesting that they do not intend to cut rates in December, especially as inflation pressures are building rapidly.

The USD/CAD has many wondering if the pair stands to continue its strong recovery or if it will correct lower. Traders should watch event risk out of Canada and the US, as surprising results could spark volatility.

Another month of net outflows of US assets could be disastrous for the greenback and US equity markets. On the other hand, a better-than-expected figure for net long-term TIC flows could lead the markets to believe that not all faith in the dollar is lost and could create an opportunity for US assets to gain.