USD/CAD Rises as Fed Tightening Speculation Rises Following Jobs Data

• USD/CAD rose 0.35% to 1.3675 after US jobless claims fell below estimates, putting pressure on the Fed to focus on its 2% inflation target.
• The market anticipates a 43.5% chance of a 25 basis point Fed rate hike in November, according to CME’s FedWatch tool, bolstering the US dollar.
• CAD stumbles on falling crude oil prices and contracting Canadian GDP, reducing prospects for a Bank of Canada rate hike.

The US Dollar (USD) extends its advance against the Canadian Dollar (CAD) as data from both countries, while still positive, favors the Dollar. Powell’s “higher for longer” phrase in his speeches continues to impact markets, which remain wary of further tightening, boosting the USD. The USD/CAD pair is trading at 1.3675 and is up 0.35% after hitting a daily low of 1.3631.

USD/CAD Gains Momentum Amid Favorable Jobless Claims and Fed Rate Hike Speculations Despite Stable Canadian Business Activity

The US Department of Labor showed that initial claims for jobless benefits for the week ending September 2 rose by 216,000, below estimates of 229,000, indicating that the job market has not yet settled. relaxed. This puts pressure on the US Federal Reserve (Fed), which is focused on driving inflation towards its 2% target.

Although Fed policymakers have started to take a more cautious stance, market reaction suggests that the Fed may raise rates in the future. CME’s FedWatch tool shows that money markets have fully priced in that the US central bank would leave rates unchanged in September. But for November, the odds of a 25 basis point rise stand at 43.5%.

The USD/CAD pair reacted higher after the data was released, despite US Treasury yields remaining unchanged. For its part, the Dollar Index (DXY), which measures the value of the Dollar against a basket of currencies, registered a modest advance of 0.18%.

Another reason behind the Loonie’s decline is that crude oil prices are under pressure, down 0.31% to $87.27 as the market awaits EIA inventories.

Recently, data from Canada showed that business activity expanded in August after a contraction of 48.6 in July. The Ivey PMI came in at 53.5, indicating expansion, as Thursday’s data showed. Some PMI subcomponents showed improvement, such as employment and supplier deliveries. Although drawing a scenario of improvement, the latest report on the Gross Domestic Product (GDP) for the second quarter contracted -0.2%, weighing on the Bank of Canada (BoC) of a possible rate hike yesterday, as the economy cools.

What must be considered?

The Canadian economic calendar will include employment data, while the US will publish wholesale inventories and Fed data.

USD/CAD Price Analysis: Technical Insights

The pair resumed its uptrend, challenging a major resistance zone at 1.3667, the daily high on April 28. A daily close above the latter would expose 1.3700 and then the March 24 high at 1.3804. Conversely, sellers could continue to wait for lower prices if USD/CAD ends Thursday’s session below 1.3667. A break of this latter level would expose the 6th September low at 1.3622 before falling towards the 4th September low at 1.3586.