Canadian Dollar recovers from four-week lows as US Dollar momentum fades

• USD/CAD retains its bullish bias despite slipping to 1.4240 from a four-week high of 1.4265. 
• Firm US inflation figures, alongside hawkish Fed remarks, are likely to limit bearish pressure on the US Dollar.
• Weak labour figures have reduced expectations of imminent BoC rate rises, keeping the Canadian Dollar under pressure.

Strong US inflation figures earlier this week continue to underpin a prospective 0.8% weekly rise in USD/CAD, despite Thursday’s pullback. At the time of writing, the pair trades at 1.4243, below the four-week high of 1.4265 reached earlier in the day. The Canadian Dollar (CAD) has edged higher in a quiet session as the US Dollar (USD) retreats from recent peaks against most of its peers.

Expectations of a further interest rate rise by the Federal Reserve (Fed) in December strengthened after this week’s robust US Consumer Price Index (CPI) figures, lending support to the US Dollar.

Those expectations have been reinforced by Fed officials, whose remarks on Thursday are likely to convey a similar message. Several policymakers are due to speak later in the day; some have already advocated tighter monetary policy at the next meeting.

Weak Canadian employment figures curb expectations of imminent BoC rate rises

Last Friday’s disappointing Canadian labour market report, by contrast, continues to weigh on the Canadian Dollar. Rather than the expected increase of 13.6K, employment fell by 4.7K in October, following a decline of 68.3K in September. The Unemployment Rate also climbed to 6.7%, its highest reading since April.

With Canada’s “rising unemployment rate amid falling wage growth rate” weakening the argument for tighter policy, TD Securities analysts note that “diverging employment data releases will likely keep USDCAD supported above 1.40,”

The Canadian Dollar consequently remains exposed to further underperformance against the US Dollar, in their assessment, as this backdrop “reduces the market pricing of a December BoC rate hike relative to the Fed,”