Canadian Dollar Forecast: Oh Canada! USD/CAD Drops Back Below 1.40 on Stellar Jobs Data

USD/CAD Key Points

• Statistics Canada released one of the strongest jobs reports in recent memory, with Canada’s economy creating over 60K new jobs in September, including a staggering 100K+ full-time roles.
• The market-implied odds of a BOC cut fell from nearly 75% before the release to closer to a coinflip now (57%) ahead of the CPI reading.
• USD/CAD traders will remain laser-focused on the 200-day MA around 1.3975.

Well, that’s one way to change a narrative!

Through the first eight months of the year, Canada’s labor market had been absolutely moribund, highlighted by an outright contraction in full-time employment. Against that backdrop, it’s perhaps not surprising that traders’ expectations for today’s jobs report were so downbeat, with just under 3K net new jobs anticipated and the unemployment rate expected to tick up to 7.2%.

Instead, Statistics Canada released one of the strongest jobs reports in recent memory, with Canada’s economy creating over 60K new jobs in September, including a staggering 100K+ full-time roles. Instead of rising, the unemployment rate held steady at 7.1%, and that despite an uptick in the participation rate.

The stellar reading on employment prompted markets to re-evaluate their expectations of an interest rate cut from the Bank of Canada this month, with the market-implied odds of a cut falling from nearly 75% before the release to closer to a coinflip now (57%). Of note, Canada’s CPI report is set for release on October 21, and it very well may tip the scales one way or another for the BOC, with clear implications for USD/CAD.

Canadian Dollar Technical Analysis: USD/CAD Daily Chart

Source: StoneX, TradingView

Turning our attention to the chart, USD/CAD saw an immediate reversal of yesterday’s bullish momentum. As we go to press, the North American pair is trading back below the psychologically-significant 1.40 handle after stalling out near the 38.2% Fibonacci retracement of the H1 fall.

For the rest of the day, traders will remain laser-focused on the 200-day MA around 1.3975. If bulls are able to defend that key long-term trend indicator, despite the strong jobs figure, it would suggest that this week’s bullish momentum remains resilient and that USD/CAD could rally toward 1.4100 or the 50% retracement closer to 1.4160 in the coming weeks. On the other hand, a close below the 200-day MA would favor a return to the recent consolidation below 1.40 as traders wait for more clarity from the BOC.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX