USD/CAD Hits New 3-Week High Above 1.3370 as Investors Eye Canada/US Job Data

The USD/CAD pair has recently reached a new three-week high, hitting 1.3375 during the London trading session. This rally of the Loonie asset comes in spite of the prevailing weakness in the US Dollar Index (DXY), rising oil prices, and the anticipated additional interest rate hike from the Bank of Canada (BoC).

In Europe, S&P 500 futures have continued their downward trend initiated on Thursday. This came after the United States labor market demonstrated more resilience than anticipated, causing market sentiment to turn bearish. Investors are currently exercising extreme caution as they await the upcoming second-quarter result season and further labor market data.

The US Dollar Index (DXY) has found support near the 103.00 mark. As the Nonfarm Payrolls (NFP) data release draws closer, fluctuations in the USD Index are expected. Analysts at RBC Economics predict that the US jobs report for June will reflect a substantial increase in payroll employment by 260K, albeit a decrease from the +339K in May. However, this still signifies a high level of employment. They also anticipate a slight rise in the Unemployment Rate to 3.8%, calculated separately from the household survey, up from 3.7% in May.

Similarly, the Canadian Dollar is expected to react significantly to its own domestic employment data. Analysts at NBF predict that job creation likely resumed in June after a minor setback in May. However, an anticipated gain of 20K may not be sufficient to offset a further rise in the unemployment rate, given the rapid growth of the labor force. In fact, they expect the unemployment rate to increase from 5.2% to 5.3%, assuming that the participation rate rises by a tenth to 65.6%.

A recent poll conducted by Reuters suggests that the Bank of Canada (BoC) will raise interest rates by 25 basis points (bps) to 5% in July. This move could be the final step before monetary policy stabilizes for an extended period.

On the oil front, oil prices have reached a new two-week high at $72.35, even as global central banks gear up for a new cycle of rate hikes. It’s important to note that Canada is the largest exporter of oil to the United States, meaning that higher oil prices bolster the Canadian Dollar. Thus, as investors keenly watch the Canada/US job data, the interplay between these various factors continues to shape the performance of the USD/CAD pair.