USD/CAD Falters Near 1.3730; Eyes on US, Canada Jobs Data

The USD/CAD pair is experiencing a slight dip in the vicinity of 1.3730 as market participants eagerly anticipate labor market data from the US and Canada. The US Dollar (USD) has been on a losing streak, which has led to the CAD’s current position.

In September, the US ISM Services PMI dropped from 54.5 to 53.6, matching predictions. However, the ADP Employment Change for the same month saw an increase of just 89,000, falling short of the anticipated 153,000 and hitting its lowest point since January 2021.

The US Dollar Index (DXY) is also receding from an 11-month high due to a decline in US bond yields, currently hovering around 106.50. Despite this, market wariness about the trajectory of the US Federal Reserve’s (Fed) interest rates could provide some support to the USD/CAD pair.

Expectations of prolonged higher interest rates from the Fed had driven US yields to multi-year highs before they began to bounce back. The 10-year US Treasury yield, which reached a peak of 4.88% on Wednesday—the highest since 2007—was at 4.71% at the time of writing.

Market players are likely to keep a close eye on the upcoming Jobless Claims and Nonfarm Payrolls data release on Friday. Positive results could bolster the USD and stir up volatility in the bond market.

On the Canadian front, data from the S&P Global Manufacturing PMI showed a decrease from the prior reading of 48.0 to 47.5 in September. Bank of Canada Deputy Governor Nicolas Vincent commented that the pandemic has led Canadian businesses to make larger and more frequent price changes, passing increased costs onto consumers, which could fuel inflation.

These remarks bolstered Canadian bond yields, with market sentiment pointing towards another potential rate hike from the Bank of Canada (BoC). The possibility of an additional rate hike this year could provide crucial support to the Canadian Dollar (CAD), as reflected in a 65% probability in money markets.

However, the CAD has been under pressure due to falling Crude oil prices, a significant commodity for Canada as a major oil exporter to the US. Despite the weaker USD, West Texas Intermediate (WTI) Crude Oil is struggling to gain momentum, currently trading around $83.50 per barrel.

Moving forward, market watchers will be closely monitoring the release of the Canadian Ivey Purchasing Managers Index (PMI) for September, followed by job reports on Friday.