The USD/CAD currency pair has witnessed a strong bullish move in recent days as the Canadian dollar (Loonie) continues to falter following disappointing employment data from Canada. While the Canadian economy showed positive job gains, the surge in unemployment has cast a shadow over the outlook for the loonie. Meanwhile, the US dollar has firmed ahead of critical inflation data from the United States.
Last week, the Canadian dollar faced pressure after domestic employment figures revealed that Canada added 50,500 jobs, surpassing the forecasted 24,700. However, the positive job growth was overshadowed by a concerning rise in the unemployment rate, which jumped from 6.5% to 6.8%, well above expectations. This unexpected increase in unemployment has significantly impacted market sentiment, pushing investors to revise their rate cut expectations for the Bank of Canada.
In response to the disappointing unemployment data, analysts have ramped up their expectations for a 50-basis point rate cut by the Bank of Canada, up from an initial forecast of a 25-basis point cut. A Reuters poll of economists also supports the view that a 50-bps cut is likely in the upcoming central bank decision. As a result, the Canadian dollar has weakened against the greenback, causing the USD/CAD pair to climb.
On the other side of the border, the US dollar showed mixed performance after the release of a US employment report for November. The US economy added 224,000 jobs, surpassing the forecasted increase of 195,000. However, the unemployment rate ticked higher from 4.1% to 4.2%, leading to speculation about potential Federal Reserve rate cuts.
Initially, the rise in the unemployment rate triggered expectations of a Fed rate cut, which weighed on the US dollar. However, the greenback quickly recovered as traders shifted focus to the resilient US economy. With a strong jobs report and growing concerns over inflation, traders are now awaiting further clues from the US consumer inflation report scheduled for release this week. This data could offer more insight into the Fed’s monetary policy stance moving forward.
From a technical perspective, the USD/CAD currency pair remains in a bullish trend, with prices holding above the 30-day Simple Moving Average (SMA). After breaking through the 1.4150 resistance level, the pair has paused, suggesting a consolidation phase before potential further gains. The Relative Strength Index (RSI) is nearing the overbought region, indicating strong bullish momentum but also signaling that the pair may be due for a short-term pullback.
Despite the price action leveling off, the overall trajectory remains bullish, with the pair making higher highs and higher lows. The bullish trendline has held up, with recent price action bouncing off the trendline to surge past significant resistance levels. Traders may face challenges around the 1.4150 mark, but the bullish sentiment remains intact, and a potential breakout to new highs is on the cards if the pair can maintain its momentum.
Today, market participants do not expect any significant reports from Canada or the US, meaning the USD/CAD pair may enter a consolidation phase as traders await further data. With the market’s focus on inflation reports later this week, USD/CAD traders should be prepared for possible volatility in response to any shifts in rate cut expectations from either the Bank of Canada or the Federal Reserve.
As the USD/CAD pair continues to show strong bullish momentum, all eyes will remain on the evolving economic conditions in both the US and Canada, with inflation data and central bank decisions likely to dictate the next major moves in the currency market.
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