- USD/CAD ends the week with losses of 1.09%, despite the recovery on Friday.
- Sentiment remains negative as fears of a US recession mount.
- May non-farm payrolls in the US beat expectations and further cemented the case for a hawkish Fed.
- USD/CAD Price Forecast: If USD/CAD breaks below 1.2458, it would expose the year’s low around 1.2400.
The USD/CAD rallied during the American session, although earlier ranged between 0.01-0.03% P/L lows, but remains above the weekly low of 1.2551, amid investors’ risk-off sentiment. At 1.2572, USD/CAD is holding steady following the Bank of Canada’s 50 basis point rate hike earlier in the week.
Good US NFP figures boost the dollar
The US docket on Friday was packed with top-tier data. Nonfarm payrolls for May showed the economy added 390,000 new jobs, far more than the estimated 318,000. Talk from financial analysts about the US labor market continues to support the view that the US Federal Reserve will tighten its monetary policy after receiving the green light.
Sources quoted by Bloomberg commented that May’s strong job growth showed further evidence that the US economy was not in a recession in the spring. Meanwhile, the median hourly wage was unchanged at 5.2%, reflecting tightness in the labor market, though allaying fears of a wage price spiral.
Late in the day, the Institute for Supply Management (ISM) revealed that the non-manufacturing PMI increased by 55.9, below the 56.4 forecast. It shows the resistance of companies, after the contraction of GDP in the first quarter of last week, of 1.5%, according to the second estimate of the Bureau of Economic Analysis.
USD/CAD, meanwhile, was flat after the release, but has recently regained some control and is heading towards the June 1 low at 1.2605. Also, it is worth noting that oil prices remain elevated, a headwind for USD/CAD. WTI trades at $118.23 per barrel.
Meanwhile, the US Dollar Index, which measures the value of the dollar against six currencies, recouped some of Thursday’s losses, rising 0.36% to 102.106, buoyed by US Treasury yields, particularly the exchange rate. the benchmark 10-year note at 2.955%, gaining four basis points.
On next week’s calendar, the Canadian agenda will include the Trade Balance, Ivey PMI, Canadian Employment Report and speakers from the Bank of Canada.
On the US front, Federal Reserve officials begin their blackout period. However, investors’ eyes would be on the inflation report along with June UM consumer sentiment.
USD/CAD Price Forecast: Technical Outlook
From a daily chart perspective, USD/CAD still has a bearish bias, but the RSI reading at 36.65, moving slightly higher, suggests a short-term correction could be in the offing. However, if USD/CAD continues to decline and breaks below the Apr 21 low at 1.2458, then a retest of recent years lows at 1.2402 is expected.
Otherwise, USD/CAD could head higher to test 1.2600. If a daily close above this figure is not achieved, the pair would remain in the range of 1.2550-1.2600.
Technical levels
Source: Fx Street
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