USDCAD Trades in a Rollercoaster Mode After Canada’s Jobs Data

One of the currencies that took center stage on Friday was the Canadian dollar. The currency traded in a rollercoaster mode against its US counterpart, following the release of Canada’s employment report for January. The report showed that the unemployment rate ticked up to 5.9% from 5.8%, while the net change in employment showed a net loss of 88k jobs, the biggest since 2009. This was the combination of a record loss of 137k part-time jobs and a 49k gain of full-time work.

However, although this appears to be a weak report, we doubt that it could affect much BoC’s policy plans. First of all, the employment loss followed two months of stellar employment gains. Even with January’s decline, the economy has still enjoyed an increase of 288.7k jobs over the past 12 months. What’s more, annual wages accelerated to 3.3% from 2.7% in December. That was the fastest since 2015. As such, with the unemployment rate still near its record low of 5.8%, accelerating wages may be a sign that inflationary pressures are building up, something that may keep BoC policymakers on track for hiking again soon.

Indeed, this is also explained by the Loonie’s reaction. The currency initially fell at the release of the report, but was quick to recover and trade even higher in less than an hour, perhaps as market participants turned their attention to accelerating salaries.

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USD/CAD Technical Outlook

USD/CAD spiked higher on Friday, following the release of Canada’s employment data for January. Nevertheless, the bulls were rejected slightly below the 1.2700 barrier and the rate slid back below 1.2650 to eventually stop near the 1.2560 support. In our view, as long as the rate is trading below 1.2650, the lower bound of the sideways range that contained the price action from the 25^th of October until the 27^th of December, there is a decent likelihood for the bears to seize control and drive the battle lower.

If they prove strong enough to push the rate below 1.2560, then we may experience bearish extensions towards our next support level of 1.2490, defined by the low of the 6^th of February, as well as the inside swing peak of the 23^rd of January.

Looking at our short-term oscillators, we see that the RSI exited its above-70 zone, slid, but hit support slightly above 50 and rebounded somewhat. The MACD, although positive, lies below its trigger line and points south. What’s more, there is negative divergence between both these indicators and the price action. These momentum signs support the case for the pair to continue trading lower for a while more, but the fact that the RSI rebounded somewhat make us careful that a minor bounce may be on the cards before the bears decide to take charge again.

On the upside, a move back above 1.2650 may initially aim for the 1.2700 barrier, where another break could confirm the return of the pair within the aforementioned range and may see scope for our next resistance zone of 1.2800, defined by the peak of the 22^nd of December.