USD/CAD Weekly Forecast: Third week of falls? BOC and Canadian jobs hold the keys

Tailwind for the bears – rising oil prices and weak US data have sent the pair down, overcoming disappointing Canadian growth figures. The focus shifts to the Bank of Canada and Canadian jobs, putting Dollar/CAD's next moves firmer in the loonie's court. 

This week in USD/CAD: Mostly bearish developments

Forgetting Fed tapering: The US gained only 235K jobs in August, far worse than 750,000 expected. While the Delta variant is mostly to blame – it brought leisure and travel hiring to a halt – the Federal Reserve will most likely hold back on tapering its bond-buying scheme. The bank buys $120 billion every month, and keeping the pedal on the metal weighs on the greenback. 

Weak US data: Ahead of the Nonfarm Payrolls, the dollar was hit hard by a trio of downbeat figures. Consumer confidence tumbled more than expected, ADP reported nearly half expected private-sector job gains and ISM's employment component showed contraction in the manufacturing sector. The greenback suffered several waves of sell-offs. 

Oil: While OPEC+ members decided to move forward with gradual output increases, petrol prices extended their upward move. Optimism about global demand and a large drawdown in US oil inventories sent WTI Crude Oil toward $70. The Canadian dollar reacted positively. 

Election tension: Canada's Prime Minister Justin Trudeau could be on his way out within a few weeks. Recent opinion polls have shown that the PM's Liberals are losing ground to the Conservatives. Investors prefer the opposition party's preference for lower taxes but are also satisfied with continuity under the Liberals.

Another scenario is that Trudeau prevails but increases his dependency on the left-leaning NDP, resulting in business-unfriendly policies. The loonie has yet to forcefully react to the elections, as Canadian politics tend to be stable. 

Negative growth: The Canadian economy shrank by an annualized 1.1% in the second quarter, worse than expected. The downbeat figure had a limited impact as most of the drag came from early in the spring, when the northern nation was under covid-related lockdowns. 

Overall, the CAD had an advantage over the USD. 

Canadian events: BOC and jobs stand out

The Bank of Canada is set to leave its policies unchanged and refrain from rocking the boat, but any subtle hints could move markets. While growth figures disappointed, global demand is set to rise and could push the BOC toward a more hawkish policy later down the line.

At this juncture, BOC Governor Tiff Macklem and his colleagues would likely prefer to be seen as staying out of politics ahead of the elections – and also wait for the US Fed to move first. Nevertheless, any upbeat comment on US growth could boost the loonie, while concerns about demand from south of the border – responsible for 75% of Canadian exports – could send the CAD down. 

Has Canadian hiring slowed like in the US? Probably not, as America has been suffering from a much harsher covid wave. Canada's labor market will likely show an ongoing recovery, perhaps repeating something similar to last month's 94,000 increase in jobs. The Unemployment Rate is forecast to slip from 7.5% to 7.4%. 

Overall, Canadian events could keep the CAD bid. 

Here is the list of UK events from the FXStreet calendar:

Attention to election polls could rise as the vote nears. Conservatives have a small lead over Liberal, but that may not necessarily translate into a landslide in parliament just yet.

Here is the current state of the polls, which shows a close contest:

Source: CBC

Investors would prefer seeing one of the mainstream parties move toward an absolute majority, preferably the Conservatives. 

US events: Inflation on investors' minds

US wages jumped by 0.6% MoM in August, higher than expected. While that is a result of less low-paying leisure hiring, it serves as another sign of inflation. Producer price statistics for August are of more interest than usual amid concerns that costs could get out of control. The publication also serves as a warm-up to next week's consumer price data. 

The Fed's John Williams – considered No. 3 at the bank – will speak early in the week and will have the opportunity to respond to the NFP. The bank's Beige Book is due out after Williams's speech and could also rattle markets. The Fed uses the data in this report ahead of its meeting, and anecdotes about employment and inflation could stir markets. 

Here are the upcoming top US events this week:

USD/CAD technical analysis

The 50-day Simple Moving Average (SMA) has crossed the 200-day SMA to the upside – a "Golden Cross" pattern that implies further gains. On the other hand, USD/CAD slipped below the uptrend support that accompanied it since June. That is a bearish sign. 

There is somewhat more room to the upside as long as the currency pair holds above 1.2420, a double-bottom. Moreover, it is hovering around the 50 and 200 SMAs, and has yet to fall below them.

Support awaits at 1.2493, the early September low, and then by the 1.2420 mark, mentioned earlier. Further down, 1.23 and 1.2250 served as stepping stones on the way up.

Some resistance is at 1.2650, which held Dollar/CAD down in early September, and then by 1.27, which capped a recovery attempt in late August. Further above, 1.2810 and 1.2950 are eyed. 

USD/CAD sentiment

The NFP cemented a no-tapering decision by the Fed while Canadian jobs figures may provide optimism about Canada. Overall, there is room for USD/CAD to fall. 

The FXStreet Forecast Poll is showing experts are bearish on all timeframes, pushing their forecasts lower in comparison to the previous week. It seems that development in the past week convinced them there is room for more. 

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