Canadian Dollar reverses losses after Nonfarm Payrolls misses expectations

  • Canadian Dollar claws back losses suffered overnight after underwhelming NFP data bursts Thursday's optimism.  

  • CAD finds a friend in rising Crude Oil prices and after data shows a fall in stockpiles. 

  • USD/CAD trend is now bullish both on shorter and longer time frames after decisive breach of key 1.3270 lower highs.  

Canadian Dollar (CAD) reverses its overnight losses against the US Dollar (USD), after US Nonfarm Payrolls data misses expectations whilst Canadian employment data mostly beats forecasts. The CAD is further supported by Oil – Canada's premier export – which finds traction on falling US stockpiles. 

USD/CAD is trading in the 1.32s on Friday during the US session.  

Canadian Dollar news and market movers 

  • The Canadian Dollar recovers versus the US Dollar on the back of lower-than-expected US Nonfarm Payrolls' data, showing 209K vacancies were filled in June versus the 225K expected. The Unemployment Rate, meanwhile, came out at 3.6% as expected. 

  • The NFP data bursts the ballon of optimism that expanded on Thursday after ADP employment change data hit the ball out of the park, substantially beating expectations – ADP is often seen as an early indicator of NFP, even though the evidence of a correlation is tenuous. 

  • The more modest increase in US employment suggests less inflationary pressure and a slightly less hawkish approach from the US Federal Reserve (Fed). Not-as-high interest rates is less bullish for USD as it suggests less capital inflows. 

  • Canadian employment data, released at the same as US NFPs, showed an overall positive result despite some mixed figures, with a much higher-than-expected Net Change in Employment for June of 60K versus the 20K forecast, but an unexpected increase in the Unemployment Rate to 5.4% when 5.3% had been forecast. Still, the data was probably viewed as posiitve overall and helped CAD.  

  • CAD is further supported by higher Oil prices, Canada’s chief export, on the back of data which shows increased demand from summer vacation-driving in the US, according to data from the Energy Information Administration, released Thursday.

  • The EIA figures show Crude stockpiles falling by 1.508 million barrels continuing the trend of last week’s 9.603M decline. 

  • CAD came under further pressure on Thursday after data showed the Canadian International Merchandise Trade fell to -3.4B vs. 1.5B expected in May, and Imports outweighed Exports when they had been forecast to come out almost equal. 

Canadian Dollar Technical Analysis: Short-term trend turns bullish, but will it hold?

USD/CAD is in a long-term uptrend on the weekly chart, which began after price rose following the 2021 lows. Since October 2022, the exchange rate has been in a sideways consolidation within the uptrend. Given the old saying that ‘the trend is your friend’, however, the probabilities overall an eventual continuation higher, favoring longs over shorts.

USD/CAD appears to have completed a large measured move price pattern that began forming at the March 2023 highs. This pattern resembles a 3-wave zig-zag, much like an ABC correction in which the first and third waves are of a similar length (labeled waves A and C on the chart below). 

The pair’s measured move looks like it has completed given waves A and C are of a similar length. This suggests price probably bottomed at the June 27 lows and is now at the start of a new cycle higher. 

US Dollar vs Canadian Dollar: Weekly Chart

A confluence of support situated under the June lows in the upper 1.3000s, that is made up of several longer moving averages and a major trendline, provides a backstop to further losses. Only a decisive break below 1.3050 would indicate this thick band of weighty support has been definitively broken, bringing the uptrend into doubt. 

US Dollar vs Canadian Dollar: Daily Chart

The daily chart above shows how the move up from the June 27 lows extended to just short of 1.3400. A cursory look at the Relative Strength Index (RSI) indicator shows the move is supported by strong momentum, further enhancing its bullishness. 

The price has broken decisively above the 1.3270 key lower high, confirming a short-term bull trend is now underway. However price was rejected at the 1.3400 crossroads where the 50-day Simple Moving Average (SMA) is currently located. 

It will take a decisive break above the 50-day SMA to keep the uptrend momentum going. If the pullback currently underway closes below the 1.3270 key level, it will bring the short-term uptrend into doubt and potentially signal more downside to come. 


Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.

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