USD/CAD falls to near 1.3800 ahead of US Nonfarm Payrolls
- USD/CAD loses ground as the US Dollar struggles on rising odds of a Fed rate cut in September.
- The US Nonfarm Payrolls are expected to rise by about 75,000 in August.
- Canada announced plans to provide financial assistance to domestic producers affected by US tariffs.
USD/CAD halts its four-day winning streak, trading around 1.3810 during the Asian hours on Friday. The pair depreciates as the US Dollar (USD) faces challenges, driven by softer-than-expected United States (US) job data. Traders are awaiting further labor market data that could shape the US Federal Reserve’s (Fed) policy decision in September. Economists project that US Nonfarm Payrolls will add about 75,000 jobs in August, while the Unemployment Rate is seen at 4.3%.
Any further weaker data would boost the odds of a Federal Reserve rate cut in September, which could put downward pressure on the Greenback. The CME FedWatch tool indicates a pricing in more than 99% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 87% a week ago.
The US Initial Jobless Claims rose to 237K for the week ending August 30, against the previous reading of 229K. This figure came in above the market consensus of 230K. Meanwhile, ADP Employment Change showed that employment rose by 54,000 in August, which came in below the expectation of 65K. This reading followed a 106K (revised from 104K) increase recorded in July.
US President Donald Trump said that his administration would impose tariffs on semiconductor imports from firms not moving production to the United States, Reuters reported late Thursday. Moreover, the Trump administration is set to begin renegotiating the US-Mexico-Canada free trade deal, according to The Wall Street Journal.
Canada announced plans to provide financial support for domestic producers hit by US tariffs, with a focus on the steel, aluminum, and automobile sectors. Industry Minister Mélanie Joly said, “We’re working hard to support these industries, and more measures will be announced soon.” Meanwhile, Prime Minister Mark Carney added that negotiations with the US are now concentrated on these sectors, emphasizing their strong supply-chain integration.
Traders will likely observe Statistics Canada’s labor market report later in the North American session. Canada’s Net Change in Employment is expected to see 7.5K jobs added in August, following a decline of 40.8K in the previous month. Meanwhile, the Unemployment Rate may rise to 7% from 6.9%.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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