- The USD/CAD outlook suggests growing concerns about the US labor market.
- Private employment in the US increased by 54,000 in August.
- The Fed will likely be more dovish than the Bank of Canada in the future.
The USD/CAD outlook suggests growing concerns about the US labor market, which is driving up expectations for a Fed rate cut. Meanwhile, a Reuters poll revealed that economists expect the Canadian dollar to gain in the next twelve months.
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Data on Thursday revealed that private employment in the US increased by 54,000 in August, a significant drop from the previous reading of 106,000. Moreover, it came below the forecast of 73,000. The weak report followed another one showing a bigger-than-expected drop in job vacancies. The result was a surge in expectations for Fed rate cuts and a decline in the US dollar.
Meanwhile, the loonie got a boost from a Reuters poll showing economists expect it to gain in the following year. According to them, the Fed is set to deliver more and bigger rate cuts than the Bank of Canada moving forward. This will allow the Canadian dollar to recover.
“The BoC is close to done with cutting rates, while the Fed is yet to start in earnest, and we suspect the FOMC is likely to surprise markets with the quantum of rate cuts that they ultimately deliver,” said Nick Rees, senior FX market analyst at Monex Europe Ltd.
USD/CAD key events today
- Canada employment change
- Canada’s unemployment rate
- US average hourly earnings m/m
- US non-farm employment change
- US unemployment rate
USD/CAD technical outlook: Price pulls back after meeting the 0.5 Fib level
On the technical side, the USD/CAD price is pulling back after climbing to the 0.5 Fib retracement level. However, it still trades above the 30-SMA, a sign that bulls are in the lead. Meanwhile, the RSI has dipped below 50, indicating stronger bearish momentum.
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Initially, bulls had taken charge near the 1.3725 key support level, pushing the price above the 30-SMA. However, the rally could not go beyond the 1.3825 level or the 0.5 Fib retracement. As a result, bears emerged to trigger a retreat to the 30-SMA.
If the SMA acts as support, the price will bounce higher to retest the 1.3825 level. A break above would allow USD/CAD to make a higher high and continue its uptrend. On the other hand, if bears are stronger, they will likely breach the 30-SMA support to retest the 1.3725 support level.
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