USD/CAD rises to near 1.4040, tracks US Dollar’s action ahead of US NFP data

USD/CAD moves higher to near 1.4040 as the US Dollar gains ahead of the US Nonfarm Payrolls data.
Investors expect the Fed to cut interest rates by 25 bps in the monetary policy meeting on December 18
The Canadian economy is estimated to have added fresh 25K workers in November.

Sagar Dua FXStreet

The USD/CAD pair gains to near 1.4040 in European trading hours on Friday. The Loonie pair rises as the US Dollar (USD) moves higher ahead of the United States (US) Nonfarm Payrolls (NFP) data for November, which will be published at 13:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, steadies above the immediate support of 105.70.

The labor market data will significantly influence market expectations for the Federal Reserve (Fed) interest rate action in the policy meeting on December 18. Economists expect the US economy to have added fresh 200K workers in November. The Unemployment Rate is seen higher at 4.2% from the former reading of 4.1%.

Higher-than-expected payrolls data would point to improving labor market conditions, which could dampen Federal Reserve (Fed) rate cut bets for the upcoming meeting, given that traders see a 67% chance favoring an interest rate reduction by 25 basis points (bps) to 4.25%-4.50%, according to the CME FedWatch tool. On the contrary, weak employment numbers would boost the same.

Investors will also focus on the US Average Hourly Earnings data, a key measure of wage growth. The wage growth measure is estimated to have grown by 3.9%, slower than 4% in October on a year-on-year basis.

Meanwhile, the Canadian Dollar (CAD) will also be influenced by the official employment data that will release alongwith the US NFP report. The Canadian employment report is expected to show that that the labor market saw fresh addition of 25K workers, higher than the former release of 14.5K. The Unemployment Rate rose to 6.6% from 6.5%.

Economic Indicator

Net Change in Employment

The Net Change in Employment released by Statistics Canada is a measure of the change in the number of people in employment in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending and indicates economic growth. Therefore, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.

Why it matters to traders?

Canada’s labor market statistics tend to have a significant impact on the Canadian dollar, with the Employment Change figure carrying most of the weight. There is a significant correlation between the amount of people working and consumption, which impacts inflation and the Bank of Canada’s rate decisions, in turn moving the C$. Actual figures beating consensus tend to be CAD bullish, with currency markets usually reacting steadily and consistently in response to the publication.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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