USD/CAD trades cautiously near 1.3650 ahead of US/Canada employment data
- USD/CAD trades with caution near 1.3650 as the US/Canada labor market data for May takes centre stage.
- The US economy is expected to have added 130K job-seekers while the Canadian laborforce is estimated to have been reduced by 15K workers.
- The optimism on the Sino-US trade deal has offered support to the US Dollar.
The USD/CAD pair strives to hold an almost eight-month low of 1.3635 during Friday’s Asian trading session, posted the previous day. The Loonie pair is expected to remain on the sidelines, with investors awaiting the official labor market data from the United States (US) and Canada for May, which will be published at 12:30 GMT.
The US Nonfarm Payrolls (NFP) data is expected to show that the economy added 130K fresh workers, slightly lower than 171K hired in April. The Unemployment Rate is seen as steady at 4.2%. Meanwhile, Average Hourly Earnings, a key measure of wage growth, is estimated to have grown moderately by 3.7% on year, compared to the prior reading of 3.8%.
This week, the US Dollar saw a sharp sell-off after the US ADP data showed a significant slowdown in private sector labor demand, reflecting the consequences of ever-changing statements on tariff policy by President Donald Trump.
Ahead of the key employment data, the US Dollar holds its Thursday recovery move, which came on the back of optimism that the US and China will secure a trade deal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles around 98.80.
On Thursday, US President Trump signaled through a post on Truth.Social that he had a very good call with Chinese leader XI Jinping. "The call lasted approximately one and a half hours, and resulted in a very positive conclusion for both countries," Trump wrote and added that both nations will meet for the next round of trade talks, but didn’t mention any timeframe.
In the Canadian region, the labor market report is expected to show that firms laid off 15K workers in May after adding a mere 7.4K job-seekers in April. This reflects that business owners have held their hiring process in standby, waiting for more clarity on Trump’s tariff agenda. The Unemployment Rate is expected to have increased to 7% from the prior release of 6.9%.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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