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Canadian Dollar strengthens further on higher US Jobless claims - Faicy

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Canadian Dollar strengthens further on higher US Jobless claims


  • Canadian Dollar appreciates for the second consecutive day as US Jobless Claims increase beyond expectations.
  • Fed’s Harker has warned that it is too early to cut interest rates.
  • The USD/CAD is gathering bearish traction and approaches an important support area at 1.3460.

The Canadian Dollar (CAD) is trading higher for the second consecutive day on Thursday. US data revealed that claims for unemployment insurance increased at a larger-than-expected extent in the last week of March, which keeps the US Dollar on the defensive.

These figures coupled with the unexpectedly soft ISM Services PMI data seen on Wednesday are feeding hopes that the Federal Reserve (Fed) will start cutting rates in June. This sentiment has put a lid on the US Treasury yield rebound and is pushing the US Dollar lower against its main rivals.

Philadelphia Fed President Patrick Harker has warned that inflation is still too high to start lowering borrowing costs, a similar line to Fed Chair Powell’s comments on Wednesday. Later on Thursday some more Fed policymakers are expected to hit the wires, although the main focus is on Friday’s US Nonfarm Payrolls report.

In Canada, the trade surplus increased well beyond expectations in February due to a strong increase in exports, which has provided additional support to the CAD.

Daily digest market movers: USD/CAD depreciates further amid broad-based US Dollar weakness

  • The Canadian Dollar’s bullish momentum is gathering pace after having appreciated nearly 0.6% over the last two days to hit fresh two-week highs.
     
  • US Initial Jobless Claims increased by 222K in the week of March 29, well above the 214K expected.
     
  • Claims from the previous week have been revised up to 212K from the 210K previously estimated.
     
  • Canadian trade surplus increased to $1.39 billion in February from $0.61 billion in January. Market experts had forecasted a shorter increase to about $0.8 billion.
     
  • Fed’s Harker reiterates Chair Powell’s view that it is still too early to start cutting rates. Their impact on the US Dollar, however, has been subdued as the market is focusing on Friday’s Payrolls data.
     
  • On Wednesday, the ISM Services PMI eased to 51.4 from 52.6 in February, against expectations of a slight increase to 52.7. The Prices Paid sub-index plunged to a four-year low, suggesting a negative contribution to inflation.
     
  • US Nonfarm Payrolls are expected to have increased by 200K in March, down from February’s rise of 275K. 

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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.24% -0.10% -0.23% -0.70% 0.07% -0.44% 0.22%
EUR 0.25%   0.14% 0.02% -0.46% 0.30% -0.19% 0.45%
GBP 0.11% -0.14%   -0.12% -0.61% 0.16% -0.33% 0.31%
CAD 0.23% -0.02% 0.12%   -0.48% 0.28% -0.22% 0.42%
AUD 0.69% 0.46% 0.60% 0.47%   0.76% 0.25% 0.92%
JPY -0.06% -0.30% -0.15% -0.28% -0.79%   -0.48% 0.15%
NZD 0.43% 0.18% 0.33% 0.22% -0.27% 0.50%   0.64%
CHF -0.21% -0.45% -0.31% -0.44% -0.93% -0.13% -0.65%  

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 approaches trendline support at 1.3460

The technical analysis indicates that the USD/CAD currency pair is approaching the trendline support level at 1.3460.The strong USD/CAD bearish reversal following the release of the ISM Services PMI extended on Thursday after another disappointing reading, this time with US Jobless claims. 

The pair keeps trading within an ascending channel as prices approach the bottom of the channel at 1.3460. The Loonie would need help from a soft US NFP report to break that level and set its focus on 1.3415 ahead of 1.3360. On the upside, resistances are 1.3530 and 1.3585.

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.

(This story was corrected on April 4 at 16:21 GMT to say in the Market Movers subheadline that the USD/CAD “depreciates” rather than “appreciates”.)



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