Canada's job market expected to flatline, Canadian Dollar under pressure

The Canadian dollar has posted losses in the European session. USD is trading at 1.3702, up 0.34% on the day. Earlier, the Canadian dollar weakened to 1.3731, its lowest level since June 27.

Canada's job growth has stalled

Canada releases the June employment report later today. Job growth has stalled since January and the economy created just 8800 jobs in May. The markets are braced for worse news in June with a consensus of no growth. The unemployment rate has been steadily increasing and is expected to rise to 7.1% from 7.0%, compared to 6.2% a year ago.

The labor market may have stalled but there is some relief that the US tariffs haven't resulted in worse employment numbers. US President Trump threatened on Thursday to impose a punishing 35% tariff rate on Canadian goods, a dramatic escalation in the trade war between the two countries. Canada and the US have been engaged in trade talks but the new round of tariffs are scheduled to take effect on August 1. The tariffs would be damaging for Canada's economy, chilling growth and boosting inflation.

Fed split over interest rate cuts

Will the Federal Reserve lower interest rates at the July 30 meeting? The money markets don't think so, with a 93% probability of a hold, according to the FedWatch CME tool. Still, this week's FOMC minutes from the June meeting indicated that some members are in favor of a July rate cut and the Fed is expected to cut at least once before the end of the year.

Inflation is running at 2.4%, high than the Fed's target of 2%. A key question is how tariffs will impact on inflation - so far, tariffs have not had much effect on inflation but that could change in upcoming inflation reports. The US releases June inflation next week and inflation is expected to tick higher to 2.5%.

USD/CAD technical

• USD/CAD has pushed above resistance at 1.3672 and is testing resistance at 1.3691. Above, there is resistance at 1.3726.
• 1.3637 and 1.3718 are the next support levels.