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Canadian Dollar dips further as the bright US NFP boosts the USD - Faicy

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Canadian Dollar dips further as the bright US NFP boosts the USD


 

  • Canadian Dollar drops for second consecutive day amid higher US Dollar.
  • Strong US employment data boosts US Treasury yields, US Dollar.
  • In Canada, strong Ivey PMI data eases downside pressure on Canadian Dollar after disappointing labour figures.

 

The Canadian Dollar (CAD) extends its losses on Friday following Thursday’s pullback to test fresh year-to-date lows. A combination of a stellar US employment report and weak Canadian labor figures have undermined investors’ confidence in an already weak Loonie.

Data released by the US Labor Department on Friday shows the US economy created employment well above expectations in March. Beyond that, wages continued growing at a steady pace, well above levels consistent with the Federal Reserve’s (Fed) 2% inflation target.

These figures pour cold water on market hopes of interest rate cuts in June and endorse the hawkish party of the central bank, which advocates for delaying and downsizing the easing cycle. This has sent US yields higher, dragging the US Dollar up with them.

In Canada, net employment levels have declined against expectations in March. The negative impact, however, has been offset by the strong improvement of March’s Ivey PMI, which has given some support to an ailing Canadian Dollar.

Daily digest market movers: USD/CAD dips further as US NFP beat expectations

  • The Canadian Dollar has lost more than 0.5% over the last two days, retracing last week’s gains and reaching its lowest price since December 2023.
     
  • US Nonfarm Payrolls increased by 303K in March from 270K in February, well above the 200K forecasted by market experts.
     
  • Average Hourly Earnings have increased at a 0.3% monthly pace and 4.1% year on year from 0.2% and 4.3% respectively in February.
     
  • Canadian Ivey Purchasing Managers’ Index has improved to 57.7, its best reading over the last 12 months, from 53.9 in February.
     
  • Somewhat earlier, Canadian employment data disappointed investors with a 2.2K decline in March after a 40.7K increase in February. The market was expecting a 25K increase.
     
  • On Thursday, Fed Powell reiterated that the central bank needs more time to decide on rate cuts, while Fed Kashkhari warned that there might not be any rate cut this year, which sent the USD higher.

Canadian Dollar price today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.06% 0.08% 0.32% 0.10% 0.21% 0.16% -0.15%
EUR 0.05%   0.10% 0.36% 0.15% 0.26% 0.21% -0.11%
GBP -0.08% -0.14%   0.23% 0.03% 0.14% 0.08% -0.24%
CAD -0.29% -0.35% -0.23%   -0.19% -0.08% -0.13% -0.44%
AUD -0.09% -0.15% -0.01% 0.23%   0.12% 0.07% -0.26%
JPY -0.22% -0.27% -0.15% 0.06% -0.13%   -0.05% -0.38%
NZD -0.17% -0.21% -0.09% 0.14% -0.07% 0.04%   -0.34%
CHF 0.14% 0.09% 0.24% 0.46% 0.25% 0.37% 0.33%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 

Technical analysis: USD/CAD has tested resistance at the 1.3640 area

The strong US employment data has sent the USD/CAD to test an important resistance area above 1.3620, which so far remains intact, as positive Canadian PMI data has eased bullish pressure on the pair.=

The overall picture shows the US Dollar trading back and forth within an ascending channel with price action capped below trendline resistance at 1.3640. Above here, the next targets are 2.3710 and 1.3770. The channel’s measured target is 1.3845. Support levels are 1.3560 and 1.3485.

USD/CAD 4-Hour Chart
USDCAD Chart

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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