USD/CAD: A tale of two labor markets

Traders are still digesting last week’s US jobs report, but one thing is clear: The US labor market is outperforming Canada’s...

Canada US

Markets are starting to settle into the traditional “Dog Days of Summer” trade, with major indices, commodities, and currency pairs seeing relatively little movement on the day ahead of tomorrow’s highly-anticipated US CPI report (see our full CPI preview report!).

Traders are still digesting last week’s US jobs report, but one thing is clear: The US labor market is outperforming Canada’s. Whereas the US just saw its strongest job growth in five months, a new cyclical low in its unemployment rate, and has fully recovered all of the job losses since the start of the pandemic, Canada has now seen two consecutive months of outright declines in full-time employment.

Central banks the world over remained hyper-focused on inflation, but an outright contraction in employment, especially against a backdrop of falling commodity prices and a slowing global economy, could certainly prompt some to slow or pause their tightening cycles. This now is the reality that the BOC has to wrestle with, presenting a possible bullish catalyst for the US dollar relative to the loonie.

USD/CAD technical analysis

As the chart below shows, USD/CAD found support at its rising 100-day EMA at the turn of the month, forming back-to-back bullish candlestick patterns in the process. Now, if traders start to price in an earlier pause for the BOC than the Fed, USD/CAD could rally back toward 1.3000 or 1.3100 in the coming days:

FXUSDCAD08092022

Source: StoneX, TradingView

Meanwhile, a break below last week’s low and the 100-day EMA around 1.2820 could erase the near-term bullish bias and leave the outlook for the North American pair more muddled than ever.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account