The Canadian Dollar gains as Oil rally offsets jobs gloom
- Labour Day closures keep liquidity thin across North America.
- Canada’s weak jobs report fades as Oil supports Loonie.
- US CPI, PPI and sentiment data guide Fed repricing.
The Loonie gains some traction versus the Greenback, while the latter posts modest losses, as US and Canadian financial markets remain closed in observance of Labour Day. Nevertheless, the USD/CAD edges lower by some 0.15%, trading at 1.3813 at the time of writing.
USD/CAD slips as Oil strength offsets soft Canadian jobs.
Last week, employment data in Canada revealed that the economy lost 41.7K workers, while the Unemployment Rate remained steady at 6.4%. This pushed USD/CAD higher as US Nonfarm Payrolls crushed estimates, with July’s print providing a leg-up that has so far been faded.
Last week’s unexpectedly strong Nonfarm Payrolls report for August confirmed Fed Chair Kevin Warsh’s statement that the jobs market is “consistent with full employment.”
Geopolitics are poised to continue to drive price action. The escalation of the US-Iran war increased upward pressure on energy prices, which typically correlate positively with the Canadian Dollar, suggesting further downside for the USD/CAD pair.
USD/CAD to be influenced by interest rate differentials
Given the backdrop, the Federal Reserve is expected to raise rates by 25 basis points, according to Prime Terminal data. Odds are at 63% to hike to 3.75% - 4$, while for holding rates, stand near 37%.
Regarding the Bank of Canada (BoC), money markets had priced in a near 70% chance of a hold at 2.25% and a slim 30% chance of a rate hike.
Although the data was positive and the US Dollar strengthened after NFP, the move faded as investors await US inflation data on the producer and consumer sides on Thursday and Friday, respectively.
Ahead of the economic calendar, it would remain absent in Canada but not so in the US. The release of inflation data on the producer and consumer side, along with jobs data and Consumer Sentiment, will provide clues about the status of the economy.
USD/CAD Price Forecast: Technical Outlook
In the daily chart, USD/CAD trades at 1.3816, maintaining a soft bearish bias as it holds below the clustered simple moving averages around 1.3999 and beneath the descending trend-line resistance drawn from 1.4248, now coming in near 1.3942. The pair still respects an underlying upward support trend line from 1.3526, but a Relative Strength Index (14) reading near 41 hints that rallies remain vulnerable while price stays capped under these overhead levels.
On the topside, initial resistance is seen at the downward resistance trend line around 1.3942, with the simple moving average cluster near 1.3999 acting as the next barrier that would need to be reclaimed to ease the current bearish pressure. On the downside, immediate support aligns with the ongoing upward trend-line zone just under the market around 1.38, with deeper levels traced back toward the former break region near 1.3598 and the trend-line origin around 1.3526 if selling extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US 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 one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
