USD/CAD eyes further losses below 1.2600 ahead of US NFP, ISM Services PMI

• USD/CAD remains pressured around six-week low after the biggest daily fall since early May.
• Upbeat oil prices, softer US dollar and risk-on mood weighed on the Loonie prices.
• Hawkish BoC Speak adds to the bearish bias, Fed speakers couldn’t lift the USD.
• Monthly prints of US employment, services activity gauge will be important to watch amid firmer sentiment, softer USD.

USD/CAD holds lower ground near the lowest levels in six weeks, recently pressured near 1.2570 after posting the biggest daily fall in three weeks. That said, firmer prices of oil and hawkish comments from the Bank of Canada (BOC) policymaker join broad US dollar weakness to underpin the Loonie pair’s latest weakness ahead of the key US employment numbers for May. The quote, however, portrayed the pre-NFP trading lull during the early hours of Friday.

Bank of Canada (BoC) Deputy Governor Paul Beaudry on Thursday said that the BoC sees an increasing likelihood that it may need to raise its policy rate to 3% or higher, reported Reuters. It’s worth noting that the BOC raised interest rates by 50 basis points (bps) to 1.5% last Wednesday.

WTI crude oil, Canada’s biggest export item, rose the most in a week even as the oil ministers from OPEC+ nations agreed on Thursday to lift output by 648K barrels per day (BPD) in both July and August, versus 432BPD expected, according to sources speaking to Reuters. The reason for the black gold’s jump could be linked to the market’s doubts over OPEC+ ability to deliver the output, as well as the “sell the rumor, buy the fact” attitude.

Elsewhere, the US Dollar Index (DXY) dropped the most in a fortnight as market players took relief from softer US data, after two consecutive days of hawkish Fed scenario. On Thursday, the US ADP Employment Change eased to 128K for May, versus 300K forecasts and a downwardly revised 202K previous reading. The Weekly US Initial Jobless Claims, on the other hand, dropped to 200K compared to 210K anticipated and 211K prior. Further, Nonfarm Productivity and Unit Labor Costs both improved in Q1, to -7.3% and 12.6% respectively, compared to -7.5% and 11.6% figures for market consensus. Furthermore, US Factory Orders for April softened to 0.3%, from a revised 1.8% in March and 0.7% forecast.

Amid these plays, the Wall Street benchmarks rose the most in a week whereas US Treasury yields remained pressured.

Looking forward, USD/CAD traders need to pay attention to the risk catalysts ahead of the key US jobs report and ISM Services PMI for May. That being said, the latest comments from Canadian Prime Minister Justin Trudeau, disliking Chinese behavior with Canadian patrol planes, and joining the USTR statements over China trade, gain the attention of late.

Read: Nonfarm Payrolls Preview: It is all about the money, three scenarios for wage growth and the dollar

Technical analysis

A clear downside break of the two-month-old support line, now resistance around 1.2600, joins successful trading below the 200-DMA level of 1.2660 to keep USD/CAD bears hopeful of visiting the 78.6% Fibonacci retracement of October 2021 to May 2022 upside, near 1.2450.