Canadian Dollar remains on the front foot vs USD as US and Canada jobs data loom
- USD/CAD struggles to gain traction as traders keenly await US/Canada jobs reports.
- Higher oil prices and the BoC’s hawkish message continue to underpin the Loonie.
- Receding September Fed hike bets and soft US bond yields keep the USD depressed.
The USD/CAD pair consolidates below the 1.3800 mark during the Asian session on Friday and remains close to a nearly two-week low, touched the previous day. Nevertheless, spot prices seem poised to register heavy weekly losses, and the fundamental backdrop backs the case for an extension of the sharp corrective decline from the 1.3940 region, or a three-week top touched on Wednesday.
Crude oil prices continue to trade near the highest level since July 24 as the geopolitical risk premium remains in play amid the ongoing US-Iran clashes over the Strait of Hormuz. Furthermore, the Bank of Canada’s (BoC) hawkish message at its September policy meeting might continue to underpin the commodity-linked Loonie and validate the near-term negative outlook for the USD/CAD pair amid a weak US Dollar (USD).
The USD Index (DXY), which tracks the Greenback against a basket of currencies, plunged to an over one-week low on Thursday amid receding Federal Reserve (Fed) September rate hike bets. Fed Governor Christopher Waller said that inflation is showing some signs of slowing, leaving the door open for keeping policy unchanged. Traders responded by pushing US bond yields lower, which keeps USD bulls on the defensive.
Investors, however, seem hesitant to place fresh directional bets and opt to wait for more cues about the Fed's future policy path. Hence, the focus will remain glued to the US Nonfarm Payrolls (NFP) report, which will be accompanied by Canada's monthly employment details. The crucial data, along with further developments surrounding the Middle East crisis, should provide some impetus to the USD/CAD pair heading into the weekend.
Dollar support seen as contingent on upcoming us inflation data
According to TD Securities, even a robust labour market print will only take the Fed so far. The bank argues that “a strong payrolls report is a necessary but not a sufficient condition for the Fed to hike in September,” noting that “the more important piece of the puzzle is inflation as part of the strength in the NFP can be considered to be a reversal of the July weakness.” In their view, “a strong payrolls report, in line with our macro team's view above, will give a slight boost to the USD but is unlikely to push the committee towards a hike unless followed by a strong inflation print,” underscoring that upcoming price data, rather than jobs alone, will be decisive for the policy outlook and Dollar direction.
USD/CAD daily chart
Technical Analysis
This week's failure to find acceptance above the 100-day Simple Moving Average (SMA) and the subsequent decline below the 61.8% Fibonacci retracement favor bearish traders. This configuration suggests rallies are likely to be sold while price trades under this overhead band, leaving spot prices vulnerable to further downside.
On the topside, immediate resistance is seen at the 61.8% Fibo. retracement at 1.3819, followed by the 50% retracement at 1.3901 and the 100-day SMA at 1.3920, with higher barriers at the 38.2% retracement at 1.3983 and the 23.6% level at 1.4084 before the recent Fibonacci anchor near 1.4248.
On the downside, initial support emerges at the 78.6% retracement around 1.3702, with a stronger structural floor at the 100% retracement near 1.3554, where sellers could be inclined to take some profits if the decline extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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