The Canadian Dollar (CAD) had been on the offensive Friday, climbing in value after the release of strong employment figures saw the CAD rise sharply. Canada surprised to the upside by adding 8.8K net new jobs in May. This strong figure blew away estimates, which had called for a loss of 15K jobs. Positive data conditionally supported the CAD at first. The emerging dynamics of the USD eventually negated those gains.
Per Friday’s stronger than expected jobs report, the CAD was much stronger than I anticipated on Friday. Throughout this period, the health of the US economy played a huge role in affecting the CAD’s value. As Greenback flows surged, they propelled the most recent rebound in the USD/CAD pair, vanquishing much of the Loonie’s previous appreciation.
Employment Figures Surpass Expectations
On Friday, Statistics Canada published its newest employment figures. All positive, since it indicated that the nation added 8.8K net new jobs in May. This shocking figure flies in the face of the median market expectation of a 15K jobs contraction. The surprise jump in employment numbers indicates that the Canadian labor market is spunkier than anticipated. It further indicates a stronger recovery for the overall economy that’s beginning to form.
The report highlighted how the job gains spread across multiple sectors, showcasing a strong and broad-based economic growth. Analysts noted that this optimistic development could have added to the CAD’s upward push. This would, in turn, help it shore up support for its newly aggressive stance against the US dollar.
Even with each of those jobs reports a positive surprise, the CAD’s advances were momentary as risk market appendage turned on a dime. Tops among investors’ radar was direction from the United States’ general economic indicators—US economic fortunes having a direct bearing on CAD trading patterns.
The Impact of Greenback Flows
Right after Canada’s employment report got released, CAD surged at first due to the excitement among the traders. This positive momentum was soon countered by more persistent Greenback flows that drove USD/CAD rates higher. Perhaps the most important factor impacting the value of the Canadian Dollar is the strength of the US economy.
Petroleum continues to be Canada’s largest export, and its price fluctuations often have an immediate impact on the CAD’s value. While the positive employment report is welcome news, the supply of positive support for the CAD’s strength depends on global oil prices. Beyond that, US economic performance is vital to its value. With oil prices continuing to be erratic, any changes have a big impact on CAD’s path in currency markets.
Market analysts noted the Loonie had more wind in its sails due to better-than-expected employment data. Yet, we can’t ignore that external factors, especially Greenback inflows made large contribution too. This push-pull dynamic between strong domestic economic indicators and the changing fortunes of the global economy has led to an unclear playing field for investors.
Future Outlook for the Canadian Dollar
Further out, analysts point out that next week’s Canadian economic data calendar is quite bare. Absence of any fresh economic indicators may leave Loonie markets vulnerable to sustained Greenback inflows. These factors could continue to play a role in driving the CAD’s performance vs. the USD.
USD/CAD stuck in downtrend since peaking near 1.4800 earlier this year. This trend is telling of the fact that traders are remaining very short-term focused on future directional moves. With limited Canadian economic releases on the horizon, market participants will likely continue to focus on developments from the US.
Whether traders are building/rebalancing their positions, speculation about lower oil prices and their impact on the CAD will continue to be top of mind. The interplay between domestic employment strength and external economic pressures will shape the outlook for Canada’s currency in the coming weeks.