USD/CAD remains under selling pressure near 1.3600 ahead of US and Canadian jobs data

Lina Portman3 days ago

0 3 minutes read

USD/CAD traded in negative territory for the fourth consecutive day, near 1.3605, during the first Asian session on Friday.
Recent discouraging US economic data has fueled the possibility of a Fed rate cut in September, weighing on the US dollar.
The net change in employment in Canada is expected to decrease to 22.5 thousand from 26.7 thousand previously.

The USD/CAD pair is trading on a negative note around 1.3605 during the first Asian session on Friday. The decline in the pair is supported by the weakness of the US dollar (USD). The release of employment reports from the United States and Canada will be the main focus of the day on Friday.

The market consensus expects U.S. employment growth to slow in June, with nonfarm payrolls (NFP) increasing by 190,000. The unemployment rate is expected to remain steady at 4.0%, partly due to an expected decline in the participation rate last month.

The recent decline in US PCE inflation and the decline in the services PMI have increased the likelihood of a Federal Reserve (Fed) rate cut in September, with markets pricing in a 70% chance of this happening ahead of the NFP release. Markets are also pricing in a second rate cut in December, with a probability of around 80%. This, in turn, is putting some selling pressure on the greenback.

On the loonie side, the net change in Canadian employment is expected to fall to 22,500, from 26,700 previously. The Canadian unemployment rate is expected to increase from 6.2% to 6.3%. At the same time, the modest decline in the price of crude oil could weigh on the commodity-linked Canadian dollar (CAD), as Canada is the leading exporter of crude oil to the United States.

Canadian Dollar FAQ

The main factors that influence the value of the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of oil, Canada's main export, the health of its economy, inflation and the trade balance, which is the difference between the value of Canada's exports and imports. Other factors include market sentiment, i.e. whether investors are buying riskier assets (risk) or seeking safe havens (risk aversion), with risk being positive for the CAD. As Canada's largest trading partner, the health of the U.S. economy is also a key factor influencing the Canadian dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian dollar by setting the level of interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The BoC's primary goal is to keep inflation between 1% and 3% by adjusting interest rates up or down. Relatively high interest rates tend to be positive for the Canadian dollar. The Bank of Canada can also use quantitative easing and monetary tightening to influence credit conditions, with the former being negative for the Canadian dollar and the latter positive for the Canadian dollar.

The price of oil is a key factor that influences the value of the Canadian dollar. Oil is Canada's largest export, so the price of oil tends to have an immediate impact on the value of the Canadian dollar. Generally, if the price of oil increases, the Canadian dollar also increases, as overall demand for the currency increases. The opposite is the case if the price of oil decreases. Higher oil prices also tend to lead to a greater likelihood of a positive trade balance, which is also positive for the Canadian dollar.

While inflation has historically been considered a negative factor for a currency, as it decreases the value of money, the opposite has actually happened in modern times with the loosening of cross-border capital controls. Higher inflation tends to cause central banks to raise interest rates, which attracts more capital from international investors looking for a lucrative place to park their money. This increases the demand for the local currency, which in Canada's case is the Canadian dollar.

Macroeconomic data releases help gauge the health of the economy and can impact the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can all influence the direction of the Canadian dollar. A strong economy is good for the Canadian dollar. Not only does it attract more foreign investment, it can also encourage the Bank of Canada to raise interest rates, which will translate into a stronger currency. However, if economic data is weak, the Canadian dollar is likely to fall.