The Canadian Dollar – the so-nicknamed Loonie – might take the cake with its recent strength. It has been doing that well—surprisingly—against the US Dollar over the last few weeks. In fact, it has risen, or at worst flat lined, in 14 of the last 16 straight trading days. This bullish momentum has pushed the USD/CAD currency pair to new multi-month lows. It now sits firmly below 1.3650, a drop that represents a notable turnabout in the forex landscape.
On Thursday, the Canadian Dollar breached fresh eight-month highs against the US Dollar. This influx drove the USD/CAD pair under the historic natural resistance of 1.3650 for the first time since October of 2022. That’s a 2.72% drop from May’s swing high of 1.4015. As the Canadian dollar continues to prove its resilience, analysts are watching a number of key indicators that will determine where CAD is headed next.
Economic Indicators and Labor Data
The upcoming release of Canadian labor data on Friday is expected to play a pivotal role in shaping investor sentiment. Analysts are looking for a groundswell contraction in the Canadian Net Change in Employment. They predict a total of -15,000 net jobs for May. If this projection comes to fruition, it would more than wipe out April’s modest gain of 7,400 jobs.
The health of the labor market is crucial for the Canadian economy, especially as it relates to consumer spending and overall economic stability. If employment numbers come in below estimation, that would show signs of underlying weakness in our economy. That could keep investors on their heels when it comes to Loonie strength going forward.
On the other hand, the US employment projection hangs like a sword of damocles over the exchange rate. US NFP net new job gains for the month of May are widely expected to fall to 130,000. That’s a drop from last month’s 177,000. A reduction in job growth in the United States could bolster the Canadian Dollar by presenting a less favorable economic landscape for the US Dollar.
Oil Prices and Economic Sentiment
Read on to learn the main driver of growth behind the Canadian Dollar’s recent performance – its direct correlation to oil prices. As Canada’s largest export, fluctuations in oil prices tend to have an immediate impact on the value of the Loonie. And of course, recent increases in the price of oil have done their part to buoy the Canadian Dollar. A sudden drop in oil prices might undo many of these gains.
Additionally, investor sentiment is still very much on edge as traders continue to face a torrent of geopolitical challenges. Tensions between US president Donald Trump and former Trump taskmaster Elon Musk have hit social media’s sweet spot. Tensions from these conflicts are creating palpable reverberations in most financial markets. Tension among this constant exchange may produce erratic market conditions, putting major currencies such as the Canadian Dollar into jeopardy.
Moreover, anxiety about an impending recession has emerged within the Canadian business sector. Businesses are understandably concerned about what a recession might mean for their bottom lines. Such a cautious view would likely limit any major upside for the Loonie in the weeks ahead.
Technical Analysis and Future Outlook
From a long technical analysis perspective, long-run downward trendline channels are holding USD/CAD price action on bearish rails. The Canadian Dollar continues its rise – and wonderful ascent these days. One can only expect it to continue appreciating against the US Dollar so much before it finds its own limit.
Market analysts are calling for a hawk eye vigilance to be placed on further data releases and global macro-economic indicators. How closely Canadian employment data tracks the US economic performance will be important in determining the USD/CAD pair going forward. Look for major developments in the weeks ahead predicated on this dynamic.