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A bearish CAD/USD is taking another hit following a better-than-expected Institute for Supply Management (ISM) non-manufacturing survey result on Friday morning.

The services sector in the United States managed to produce marginal growth in September with a reading of 50.2. The consensus expected the index to fall to a neutral 50.0 reading.

TD Securities senior economics strategist Charmaine Buskas considers the marginal reading to be “as good as it gets” amidst the context of the current economic and financial crisis in the U.S.

“How long the ISM non manufacturing activity index stays above 50 remains to be seen, especially given the slowdown in the global economy. But for now, the fact that the data was in line with expectations should be seen as a positive,” she wrote in a research note.

The Canadian dollar is subsequently down 0.0030 to 0.9236 against the U.S. dollar. The CAD/USD had reached new 2008 lows of 0.9222 earlier in the morning on nonfarm payrolls data for September. Surprisingly, the 0.0057 CAD/USD drop came on a larger-than-expected loss of jobs.

The employment report showed a decline for the ninth straight month, when a 159k fall was reported against expectations for a 105k drop.

“This is just more confirmation that the U.S. economy was weakening markedly in September, even before the worst of the financial storm hit,” wrote Jennifer Lee from BMO Capital Markets

Foreign exchange trading continues to favour the U.S. dollar on Monday as financial markets lay in wait of the ratification of the U.S. Troubled Asset Relief Program (TARP).

Congressional lawmakers have reached an agreement on the final details of a $700 billion U.S. financial market rescue package that will release $250 billion of funding immediately, if passed. The 106-page document, entitled the Emergency Economic Stabilization Act of 2008, calls for $700 billion of funding to be delivered in stages.

The U.S. dollar is down 0.90 to 105.11 against the yen, but up 0.0052 to 1.0388 against the Canadian dollar. The Australian dollar is down 0.0179 to 0.8132 and the pound sterling is down 0.0415 to 1.8032, both against the U.S. dollar.

Citigroup FX strategists are calling the potential bailout of the financial sector a welcome move, but say the legislation won’t stop the credit crisis all by itself.

“Given that the prevailing levels of leverage can no longer be sustained, effectively addressing the crisis at this stage requires treating the causes (lack of capital) rather than merely the symptoms (illiquidity). In this, the plan falls short: direct capital injections to select institutions or forced debt-to-equity conversions may not only be more effective but would also be a lot less expensive in upfront costs,” they wrote in a research note.

The euro is down 0.0213 to 1.4401 against the dollar. Before falling back down to current levels, the EUR/USD had rebounded to 1.4473 from session lows of 1.4303 after 10 a.m. EDT with the announcement of large-scale co-ordinated liquidity injections on a global scale. By the terms of the announcement, the Fed will increase swap agreements to $620 billion from $290 billion. The Citigroup strategists called the outlook of the EUR/USD on the heels of the TARP being passed “ambiguous.”

“If TARP manages to contain the dislocations in money markets, volatility could be contained and EURUSD would drift to the higher portion of its 1.40-1.50 trading range. The dominant theme of risk unwind is set to remain in place,” they wrote.

USD/JPY down 0.90 to 105.11.
EUR/USD down 0.0213 to 1.4401.
GBP/USD down 0.0415 to 1.8032.
USD/CAD up 0.0052 to 1.0388.
AUD/USD down 0.0179 to 0.8132.

All data taken at 12:59 p.m. EDT.