The loonie remains steady as the week opens. This steadiness was achieved in the face of more upsetting employment numbers emerging from our friends to the north, and the south. In fact, as of this writing, the USD/CAD exchange rate is 1.3820. This figure represents a small decrease of 0.06% on the day. This relative stability is occurring even as the Canadian labor market has quickly deteriorated, losing hundreds of thousands of jobs in just the past few months.
In August, it takes a severe nosedive, shedding about 65,500 jobs. This dangerous trajectory has led to over 100,000 jobs lost within two months. In particular, the worsening situation in the Canadian labor market has been a concern, as the economy continues to deal with elevated inflationary pressures. Meanwhile, south of the border, the U.S. nonfarm payrolls report revealed a gain of only 22,000 jobs, a stark contrast to market expectations of 75,000. This tragic but necessary number has driven the unemployment rate in the U.S. up to 4.3%. That represents the most we’ve seen since December 2021.
Currency Market Dynamics
According to the current USD/CAD trading conditions, the currency pair has fallen under 1.3830 support. Currently, it’s probing the second support area at 1.3821. As traders, speculators and economists always keep an eye on such levels, it can create an expected catalyst prompting more movement within the currency pair. Traders will focus next on resistance lines above. These are capped at 1.3843 and 1.3852 in the next few days.
The loonie’s underperformance is indicative of a risk-averse market sentiment characterized by heightened global economic uncertainty. Despite these labor market challenges, the currency itself remained resilient, fighting against deeper moves to succumb to the U.S. dollar. This stability is impressive considering that economic indicators point toward a potential deceleration in growth for both countries.
Bank of Canada’s Rate Decisions
The Bank of Canada has a tightrope to walk with interest rates as it makes the tough call on a precarious economy. Despite inflation fears, core CPI is around 3%. That is why the central bank is dancing on its feet to avoid cutting interest rates at this juncture. The next PCE inflation report drops only one day before the September 17 rate meeting. This report has the potential to dramatically influence their policy choices.
One thing is clear—market participants are keenly attuned to the stakes. This report may determine whether the Bank of Canada holds rates steady or chooses the path of cuts to counteract stimulating economic pressures. The double whammy of unemployment continuing to rise and the employment situation worsening on the ground may force the central bank to rethink its dovish course.
Implications for Investors
More than ever, investors need to keep their eyes wide open as they work their way through this new economic normal. These mixed signals from both labor markets mean that volatility is likely to remain high in the currency markets, especially with respect to USD/CAD. The Canadian dollar’s ability to remain steady during such turbulent times could be indicative of underlying strengths, but investors should remain cautious.
With the strikes continuing to develop, traders will continue to deeply monitor domestic labor data. In addition, they’ll track important international economic indicators that could impact global currency valuations. Inflation rates, employment figures, and the policies of central banks are becoming increasingly related. They are going to shape the reality of the market in a big way very soon.