- US adds 339K jobs, beating estimates, but USD/CAD stays tepid.
- CAD gains momentum on a 1.70% surge in WTI Crude Oil prices.
- Uncertain Fed rate hike in July overshadows USD’s future trajectory.
USD/CAD registers modest losses after an outstanding jobs report in the United States (US) would likely keep the US Federal Reserve (Fed) hitting the economy’s brakes, despite recent dovish comments supporting a pause. Nevertheless, the US Dollar (USD) continued to weaken while the Loonie (CAD) strengthened. At the time of writing, the USD/CAD is trading at 1.3428, down 0.16%.
Strong job growth figures unable to buoy USD; WTI Crude Oil surge lifts CAD, sparking a USD/CAD shake-up
The USD/CAD stopped its fall at around the 200-day Exponential Moving Average (EMA) at 1.3417 on the release of May’s US Nonfarm Payrolls report, revealed by the US Department of Labor. The US economy created 339K jobs in the economy, crushing estimates of 190K, though the Unemployment Rate ticked higher to 3.7% from 3.4%, a 53-year low level.
Although the data supported a stronger US Dollar, the USD/CAD treads water after printing a daily low of 1.3406 ahead of the Nonfarm Payrolls release.
Given the backdrop, crude oil prices were another factor that boosted the CAD, with Western Texas Intermediate (WTI), the US crude oil benchmark, recovering ground gaining 1.70%, at $71.33 per barrel, along with a risk-on impulse, that keeps the greenback pressured through pairing some losses.
The US Dollar Index (DXY), a measure that tracks the buck’s value vs. six currencies, edges up 0.31%, at 103.888, underpinned by increased bets for a July rate hike by the Fed. According to the recent update from the CME FedWatch Tool, the Federal Reserve will likely maintain the current interest rates steady for the month. However, the forecast for July is considerably less definitive, with the likelihood of a rate change teetering at approximately 50.7%.
Source: CME Fed Watch Tool
An absent Canadian economic docket left USD/CAD traders leaning on the dynamics of the US Dollar. But recent data showing strong growth in the Canadian economy puts pressure on the Bank of Canada (BoC) to further tighten the economy, at the threat of elevated inflationary pressures.
USD/CAD Price Analysis: Technical outlook
From a technical perspective, USD/CAD faced solid support at the 200-day EMA, with buyers piling in, driving the price 30 pips up. Nevertheless, the Relative Strength Index (RSI) indicator and the 3-day Rate of Change (RoC) in bearish territory suggest downside action in the near term. Therefore, the USD/CAD could be pressured, with support back at the 200-day EMA at 1.3417, before testing 1.3400. Break below will expose May’s low of 1.3314. Conversely, the USD/CAD first resistance would be the 1.3500 figure, followed by the 100-day EMA at 1.3510.
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The USD/CAD dropped on Friday as of the US Nonfarm Payrolls report came out showing solid payrolls growth of 916,000 jobs in March. Despite the good news from the report, the CAD has been flexing its strength and managed to make gains against the USD, falling from a high of 1.2607 to 1.2528.
The US Nonfarm Payrolls report showed that 916,000 jobs were added in March, higher than expected and marking the fifth straight month of job gains. This gives the US economy a boost as the outlook for the labour market continues to improve.
On the other side, the Canadian dollar has been showing signs of strength lately. This can be attributed to the Bank of Canada’s decision to hold its key interest rate steady at 0.25%. This decision kept the cost of borrowing low, allowing consumers to finance purchases without having to worry about rising interest rates.
Furthermore, another reason why the CAD is showing strength is due to the Vaccine Roll-Out Program, set in place by the government to help Canadians gain access to the vaccine as soon as possible. This program is helping to restore investor confidence in the Canadian economy and is allowing the CAD to make gains against its counterparts.
Overall, the USD/CAD dropped as of the US Nonfarm Payrolls report came out, despite the strong numbers. This shows that the CAD is flexing its strength, making gains against its counterparts in spite of the good news from the US. As long as the Bank of Canada keeps its cost of borrowing low and the Vaccine Roll-Out Program remains in place, we may expect the CAD to make further gains against the USD.
