The USD/CAD currency pair has found a bottom around the 1.3800 level after hitting a four-day low and rebounding. Far worse than expected job numbers from Canada have led to this consolidation. In August, the Canadian economy shed 65,500 jobs, the biggest drop since January 2022. The unemployment rate in Canada jumped up to 7.1% from 6.9%, flashing caution that the health of the labor market may be in jeopardy.
The USD/CAD currency pair is steady around the key 1.3800 level. This stability belies a very tenuous performance balance in currencies weighed down by diverging economic fundamentals. With immediate support for the pair at 1.3740, the next level of support comes in at 1.3700. On the other hand, a resistance is set for 1.3850 and 1.3900 levels. Some analysts believe a significant break higher would reveal the lurking psychological barrier at 1.4000.
Relative Strength Index (RSI) for USD/CAD at 52 suggests that the pair has mostly neutral momentum. The Average Directional Index (ADX) reading is at 18, indicating very low trend strength in today’s volatile market. Buyers need to be particularly careful. The USD/CAD is holding higher above the 50-day Simple Moving Average (SMA) at 1.3743, which may serve as a foundation of support.
USDCAD is shaped by several domestic factors. Further, U.S. labor market data has been the key driver of FX markets. After the shock of last week’s U.S. Nonfarm Payroll (NFP) report, in which the economy added a paltry 22,000 jobs in August. At the same time, the unemployment rate rose to 4.3%. This immediately disappointing headline number helped lead to a further slide in the U.S. Dollar and Treasury yields.
The Canadian labor market data does not present a sunny picture. Meanwhile, the participation rate has fallen to 65.1%. This steep drop reflects other slacks in the labor market, needed to jug consumer spending and halt our growing economy. The very slightly good news… There is one somewhat positive development hidden in all this. Average hourly wages in Canada increased 3.6% annually, up from 3.5% a month ago. While slowing unemployment wage growth will dent consumer confidence, this may provide some positive offset.
These market reactions have been reflected in bond yields, with Canadian government bond yields plummeting. The 10-year yield has retreated to 3.26%, having just touched an intraday low of 3.22%, its lowest level since June 24. This decline is due in no small part to heightened investor caution after the terrible labor market report.
Going forward, analysts will be looking to see how these newly released economic indicators will impact the USD/CAD pair and overall market sentiment. Soft labor prints on both sides of the border, in Canada and the U.S., could go a long way to maintaining a lid on volatility. Investors will remain extremely vigilant for signals of a rebound or more worsening in economic fundamentals.