- Canada to record a Net Change in Employment of 27.5K in December.
- BOC remains firm on its tightening plans as the Omicron strain seems to be milder.
- Canada’s jobs blowout could rescue CAD bulls amid a parallel US NFP release.
Amidst a cautiously hawkish Bank of Canada (BOC), WTI prices correcting and FOMC minutes pointing to aggressive tightening, USD/CAD is likely to extend its ongoing upward trajectory.
The Canadian dollar is set to experience more pain, with the recovery in the Canadian employment sector seen faltering in December after a big November jobs blowout.
Statistics Canada is due to be published the December labor market report on Friday at 1330GMT. The North American economy is expected to add 27.5K jobs in December as against a massive jobs growth of 153.7K reported in November. The Unemployment Rate is seen steadying at 6.0% last month while the Participation Rate is also likely to remain unchanged at 65.3% in the given period.
November’s growth exceeded expectations of 38K, which was closer to October levels. The gains pushed employment a full percentage point higher than pre-pandemic levels, which suggested that Canada was on its way to a full economic recovery.
Source: FXStreet
At the same, the US is scheduled to release its monthly labor market report as well, with the headline Nonfarm Payrolls seen rising to 400K in December vs. 210K booked previously. The Unemployment Rate is likely to tick down to 4.1% in the reported month vs. November’s 4.2%.
A potential slowdown in the Canadian employment sector combined with robust American jobs data could likely keep the Canadian dollar undermined against its US counterpart.
Adding credence to this premise, the December Fed meeting minutes revealed that the world’s most powerful central bank remains on track for faster tightening amid elevated inflation and a strong labor market. The Fed policymakers also discussed the beginning of a reduction to the balance sheet.
On the other hand, the Bank of Canada (BOC) maintained its key interest rate at 0.25% in December while delivering cautious language in its accompanying monetary policy statement. The BOC officials remained wary over the economic impact of the new Omicron coronavirus variant.
The Omicron strain, however, has proven to be milder than initially estimated, and therefore, markets are now pricing in five quarter-point rate increases by the BOC this year. The USD/CAD pair may ignore the hawkish BOC expectations amid contrasting labor market scenarios in both the North American economies.
USD/CAD Probable Scenarios
Heading into Friday’s Canadian jobs data release, the US dollar is on an upsurge, tracking the yields higher following the hawkish Fed outlook. WTI keeps its corrective decline intact below $78 amid a reduced appetite for high-beta assets.
USD/CAD’s technical chart favors bulls, pointing to a likely extension of the US dollar strength or a big disappointment in the Canadian jobs data.
USD/CAD: Daily chart
USD/CAD has confirmed a falling wedge breakout on the daily sticks a day before, with the bulls now recapturing the critical 21-Daily Moving Average (DMA) at 1.2798. The pain in the Canadian dollar could be exacerbated if the jobs data fall short of the market’s expectations, prompting the pair to break through the recent range highs around 1.2850. Further up, all eyes will remain on the 1.2900 level. The 14-day Relative Strength Index (RSI) looks north just above the midline, backing the bullish view.
Only an upside surprise on the Canadian jobs data or a big disappointment on the US NFP report could save the day for CAD bulls. In that case, the spot could retrace to test the wedge resistance-turned-support at 1.2723, below which a sharp drop towards the bullish 50-DMA at 1.2684 will be in the offing.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD flirts with daily tops near 1.0730
The continuation of the selling pressure in the Greenback now lends further oxygen to the risk complex, encouraging EUR/USD to revisit the area of daily highs near 1.0730.
USD/JPY recovers toward 157.00 following suspected intervention
USD/JPY recovers ground and trades above 156.50 after sliding to 154.50 on what seemed like a Japanese FX intervention. Later this week, the Federal Reserve's policy decisions and US employment data could trigger the next big action.
Gold holds steady above $2,330 to start the week
Gold fluctuates in a relatively tight channel above $2,330 on Monday. The benchmark 10-year US Treasury bond yield corrects lower and helps XAU/USD limit its losses ahead of this week's key Fed policy meeting.
Week Ahead: Bitcoin could surprise investors this week Premium
Two main macroeconomic events this week could attempt to sway the crypto markets. Bitcoin (BTC), which showed strength last week, has slipped into a short-term consolidation.
Five Fundamentals for the week: Fed fears, Nonfarm Payrolls, Middle East promise an explosive week Premium
Higher inflation is set to push Fed Chair Powell and his colleagues to a hawkish decision. Nonfarm Payrolls are set to rock markets, but the ISM Services PMI released immediately afterward could steal the show.