Canadian Dollar slides as Canada sheds 41.7K jobs, US payrolls surge

• The US Dollar strengthens after US job creation significantly exceeds market expectations.
• Canada loses 41.7K jobs in August, sharply missing expectations for a 15K increase.
• USD/CAD gains nearly 80 pips following the simultaneous releases, rising 0.39% on the day.

USD/CAD accelerates sharply higher on Friday, trading around 1.3850 at the time of writing, up 0.39% on the day. The pair gains nearly 80 pips following the simultaneous release of employment reports from the United States (US) and Canada, which provide a double boost to the US Dollar (USD) against the Canadian Dollar (CAD).

US Nonfarm Payrolls (NFP) increased by 162K in August, according to data released by the Bureau of Labor Statistics (BLS) on Friday. The reading significantly exceeded market expectations for a 56K increase and followed a revised 21K gain in July.

Revisions to previous months also strengthen the US employment report. June's payroll gain was revised higher to 31K from 20K, while July's figure was upgraded to a 21K increase from a previously reported 23K decline. Overall, employment gains in June and July combined were 55K higher than previously reported.

Other components of the US employment report were more moderate. The Unemployment Rate remained unchanged at 4.1%, in line with expectations, while the Labor Force Participation Rate increased to 61.6% from 61.4%. Meanwhile, annual Average Hourly Earnings growth slowed to 3.1% in August from 3.2% in July.

Nevertheless, the significant upside surprise in payroll growth supports the Greenback. The US Dollar benefits from signs that the labor market remains more resilient than expected.

In contrast, Canada's employment report offers little support to the Loonie. The Canadian economy lost 41.7K jobs in August after creating 75.1K jobs in July, while markets had expected another 15K increase. The Unemployment Rate remained unchanged at 6.4%, as anticipated.

Annual Average Hourly Wages growth in Canada also slowed sharply to 2% in August from 3% in the previous month. The combination of job losses and slower wage growth therefore weighs on the Canadian Dollar and amplifies the USD/CAD rally following the releases.

USD/CAD technical analysis

In the one-hour chart, USD/CAD trades at 1.3852, keeping a capped near-term tone as the pair hovers around the 100-period simple moving average (SMA) at the same level while remaining below the 200-period SMA at 1.3860. The dense band of resistance just overhead, reinforced by horizontal barriers at 1.3872 and 1.3890, suggests rallies are vulnerable to selling pressure even as the Relative Strength Index (14) holds in bullish territory around 67, hinting at stretched but not yet extreme upside momentum.

On the topside, immediate resistance is the 100-period SMA pivot at 1.3852, followed by the 200-period SMA at 1.3860 and then the horizontal caps at 1.3872 and 1.3890. On the downside, initial support is seen at 1.3825, with a deeper floor at 1.3765, where a break would expose a more pronounced corrective phase despite the current momentum backdrop.

(The technical analysis of this story was written with the help of an AI tool. Know more.)