USD/CAD holds onto Friday’s losses around 1.3800, investors await Fed-BoC policy

The USD/CAD pair clings to Friday’s losses near 1.3800, driven by strong Canadian employment data.
Investors expect the BoC to hold interest rates steady and the Fed to cut them on Wednesday.
US President Trump refrained from providing a timeframe about when the White House will resume trade talks with Canada.

Sagar Dua FXStreet

The USD/CAD pair trades weakly near its 11-week low around 1.3800 during the Asian trading session on Monday. The Loonie pair fell drastically on Friday after the release of the Canadian labor market report for November, which showed that the Unemployment Rate dropped significantly to 6.5% from 6.9% in October due to a significant increase in part-time workers.

Full-time jobs created by the Canadian economy in November were 53.6K, slightly lower than 66.6K in October, while economists anticipated that employers would have shed 5K jobs.

Strong Canadian employment data has diminished hopes of an interest rate cut by the Bank of Canada (BoC) for the monetary policy scheduled on Wednesday. The BoC is expected to hold interest rates steady at 2.25%.

However, the uncertainty over trade relations between the United States (US) and Canada still remains a major hang for the Canadian Dollar. Following the meeting Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum on Friday, US President Donald Trump stated that talks were "very good, very productive", but didn’t clarify on when Washington will resume trade talks with Canada.

US President Trump said, “We’ll see,” when asked if he would restart trade talks with his northern neighbour, cbc.ca reported.

Meanwhile, the US Dollar (USD) trades with caution ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 3.50%-3.75% as labor market conditions continue to deteriorate.

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

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This weeks’ two big inflation reports will offer perspective

Payrolls on Friday surprised with a big gain, 165,000 new jobs rather than the 65,000 forecast. Also the unemployment rate fell from 4.2% to 4.1% although average hourly earnings are up only 0.4% ($32.75). This weeks’ two big inflation reports will offer perspective. Tomorrow it’s CPI and on Friday, which is a Friday the 13th, it’s PPI.

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