CAD Dips on Weak Canadian Job Data

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USD/CAD is back above the 1.3000 line on Friday, after weak Canadian job numbers and a strong US nonfarm payroll report.

US nonfarm payrolls outperforms

The week is wrapping up on a busy note, as Canada and the US both released employment reports for June. Canada’s numbers were a disappointment. Employment fell by 43.2 thousand, nowhere near the forecast of a 23.5 thousand gain. There was a silver lining as the unemployment rate fell to an impressive 4.9%, down from 5.1% in May (5.1% exp.).

In the US, nonfarm payrolls was much stronger than expected, with a gain of 381 thousand. This was higher than the May gain of 336 thousand and crushed the estimate of 240 thousand. Wage growth and the unemployment rate were unchanged, at 3.6% and 0.3%, respectively. We’ll have to wait for the markets to digest the impressive NFP release – if investors feel that the Fed will opt for a 50bp increase rather than another 75bp move, it would likely put pressure on the US dollar.

The Bank of Canada will be in the spotlight next week, as the BoC holds a rate meeting on Wednesday. The BoC is expected to continue its aggressive rate-hike cycle, but it’s uncertain if the increase will be 50bp or a supersize 75 bp, following the Federal Reserve’s lead. The benchmark rate is currently at 1.5% and the BoC has said that it views the “neutral” range at 2-3%, so higher rates are clearly on the way – it’s just a question of how much and how fast.

With inflation running at 7.7%, a four-decade high, the BoC will keep hiking until it sees the elusive inflation peak. The economy appears resilient enough to absorb further hikes. Growth has been boosted by high oil prices and the labour market remains robust.

USD/CAD Technical

• 1.3038 is under pressure in resistance. Above, there is resistance at 1.3109
• USD/CAD has support at 1.2961 and 1.2890