USD/CAD rises as US Dollar gains on mixed labor data and Fed outlook

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USD/CAD strengthens as fading Fed rate-cut bets keep the US Dollar supported.
US labour data paints a mixed picture, combining stronger hiring with softer wage momentum and a slight rise in unemployment.
Canada’s producer prices extend their monthly gains, but the Canadian Dollar struggles to capitalize.

The Canadian Dollar (CAD) is under pressure against the US Dollar (USD) on Thursday, with the Greenback holding firm as markets scale back expectations of a December interest rate cut by the Federal Reserve (Fed). At the time of writing, USD/CAD is trading around 1.4074, hovering near a two-week high amid broad USD strength.

The delayed September US labour report delivered a mixed but generally Dollar-supportive tone. Nonfarm Payrolls (NFP) rose 119K, comfortably beating the 50K forecast, while August was revised to a 4K decline instead of the previously reported 22K gain. The Unemployment Rate ticked up to 4.4% versus expectations for 4.3%, and the Labour Force Participation Rate improved to 62.4%.

Wage data came in softer than projected, with Average Hourly Earnings rising 0.2% MoM compared with the 0.3% estimate. On an annual basis, earnings increased 3.8% YoY, marginally above the 3.7% forecast. Average Weekly Hours remained steady at 34.2.

However, with the October jobs report postponed, the September dataset has taken on greater importance ahead of the Fed’s December 9-10 meeting. The US Dollar continues to find demand as markets reassess the Fed’s near-term policy outlook. Traders now assign only a 39% probability of a December rate cut lower than the roughly 50% priced a week ago.

Hawkish commentary from Federal Reserve officials also supported the cautious policy outlook. Cleveland Fed President Beth Hammack warned that cutting rates too early could distort market pricing and prolong inflation, while Fed Governor Michael Barr said policymakers must tread carefully, balancing support for the labour market with the need to bring inflation back to the 2% target. Barr added that he remains concerned that inflation is still running near 3%.

In Canada, producer price data offered a generally firm picture for October. Statistics Canada reported that the Industrial Product Price Index (IPPI) rose 1.5% month-over-month, marking the fifth straight monthly increase. The Raw Materials Price Index (RMPI) also climbed 1.6%, supported by higher prices for metal ores and concentrates, although crude energy prices declined amid persistent global oversupply. While the data point to rising cost pressures within Canada’s industrial sector, they failed to meaningfully support the Loonie.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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