The Canadian dollar spiked against the U.S. dollar after Canada’s October labor market release came out. These numbers showed a somewhat surprising decline in the unemployment rate, further adding to optimism about the economy. The USD/CAD currency pair opened the day in a narrow band around 1.4100 prior to the release of the data. The CAD continued to build on its strength, turning around the CAD to USD six-day rally in the currency pair. FactSet analysts forecast the unemployment rate to remain unchanged at 7.1%. Instead, it fell to 6.9%, catching many in the financial community off guard.
The Canadian labor market data is extremely important for investors and traders in Loonie. Specifically, the Employment Change number has the most effect on the Canadian dollar’s value. As the numbers came in, the USD/CAD pair came under heavy downward pressure, pulling it back below the 1.4100 support level.
Labor Market Statistics Impact
Statistics Canada confirmed that Canada’s unemployment rate continued to go down in October as it fell to 6.9%, down from 7.1%. This figure beat analysts’ expectations in terms of the downturn, and will surely restore plenty of confidence in the strength of the Canadian economy. The report showed that average hourly wages jumped by 4% in just the past year, the highest jump since 2000. This is a big change from the annualized growth of only 3.6% last September. Such a significant increase in wages indicates the buildup of inflationary forces, putting downward pressure on the Fed’s monetary policy actions in the coming months.
This positive labor market data has historically been one of the strongest positive correlations with the CAD’s performance. Because of this reason, Employment Change figure has a huge impact in deciding how the markets are going to move. We only need to look at recent figures that demonstrate continuing robust wage growth paired with a shrinking unemployment rate. Consequently, traders may view the CAD positively in the short-term.
Currency Pair Dynamics
Before the labor market report release, the USD/CAD pair was trading just above 1.4100. Technical analysts noted that should the pair break above the November 6 high of 1.4140, it could rise towards the significant round number of 1.4200 and potentially challenge the April 9 high of 1.4274. If the quote penetrates below this August 7 floor of 1.3722, we will likely see a drop in 1.3600 direction. It could head towards the June 16 trough of 1.3540.
The recent bullish trend in USD/CAD breaks even this impressive performance. Further support comes from upward-sloping indicators, such as the 20-day Exponential Moving Average (EMA) around 1.4027, which point towards a bullish short-term direction for the pair. The Relative Strength Index (RSI) remains firmly in bullish territory above 70.00 demonstrating strong bullish momentum. This might mean that overbought conditions have set in, so traders should be careful about attempting to enter a trade.
Market Reactions and Future Outlook
Following the labor market data, USD/CAD fell back below 1.4100. This action turned around its recent strengthening trajectory and highlights just how reactive this loonie vs greenback currency pair can be to key data points from Canada. Collectively, the bullish CAD sentiment is pretty high. It’s managed to stay above former resistance now support, from 1.4016 to 1.4080.
To be sure, market participants are keenly surveying these moves. They’ll be particularly attuned to all major economic reports and data releases that have the potential to influence the course of monetary policy and market perceptions of the Loonie. As seen from the heat map, USD/CAD has fallen by -0.19% following the release of the employment data. Beyond that, the outlook on the loonie is cautiously optimistic as we go ahead.