Canadian Dollar steadies at 1.3800 awaiting employment data from US and Canada

The Canadian Dollar (CAD) holds minor losses against the US Dollar (USD) on Friday, as the USD/CAD pair trades just above 1.3800 after bouncing from two-week lows at 1.3765. The Loonie, however, remains on track for a 0.7% rally this week, and the USD/CAD weekly chart is forming a bearish engulfing candle, which is a negative signal, with all eyes on August's employment figures from Canada and the US.

Loonie bulls have been encouraged by the increase in Crude Oil prices, Canada’s main export, as the US and Iran resumed reciprocal attacks and escalated their threats, heightening concerns about an all-out war in the region. The barrel of Brent Oil appreciated about 6.5% on the week, hitting one-and-a-half-month highs above $96.00 on Thursday, before pulling back below $94.00 on Friday.

CAD braces for another labour market surprise

Analysts at Commerzbank observe that the Bloomberg consensus “expects an increase of 15,000 jobs” in Canada in August, but caution that “the consensus has often been in this range in recent months, while the actual figures have delivered substantial surprises in either direction.”

Commerzbank argues that “today’s data surprise is likely to play an important role.” In their view, “if the labour market once again surprises to the upside, the CAD should benefit as well,” although they stress that Canada’s jobs backdrop “has been on something of a roller coaster in recent years” and that the “escalation in relations with the US is likely to have weighed on sentiment,” meaning “weaker figures would hardly come as a surprise either.”

Fed caution keeps Dollar on the back foot as focus shifts from jobs to inflation

The highlight of the day, however, is the US Nonfarm Payrolls (NFP) report, released at the same time as the Canadian jobs data. Net employment is expected to have increased by 56K in August following an unexpected 23K drop in July. The impact on the US Dollar, however, might be muted in this case, as investors await next week's Consumer Price Index (CPI) data to complete the Federal Reserve's (Fed) monetary policy puzzle.

Analysts at MUFG highlight that New York Fed President John Williams' comments affirming that “the trend in inflation is moving slowly down as some of the effects of the tariffs move into the rearview mirror.” and that current policy rates “remain in a good place for the economy,” have triggered some reassessment of the Fed's near-term monetary policy, reinforcing the impression of a cautious, data-dependent stance.

Against that backdrop, MUFG expects that “today’s nonfarm payrolls report” will “prove less important for Fed rate hike expectations than next week’s CPI report,” which in their view should help “dampen the impact on US rates and the US dollar.”

(This story was corrected at 12:10 GMT to properly mention John Williams' position as New York Fed President, instead of New Fed President.)