The Canadian dollar rallied against the greenback on Friday after the release of the jobs report that surpassed expectations. The USD/CAD currency pair, however, attempted to regain the lost ground after the release of strong US non-farm payroll data, but a rise in the unemployment rate negated the rally quickly. A strong recovery in the price of crude oil in the first week of January, following a meltdown during Christmas, is also aiding the Canadian dollar’s uptrend against the greenback.
Job data, crude oil rally, and dovish Fed supports the Canadian dollar’s uptrend
The release of the Canadian labor force survey for December by Statistics Canada sparked the loonie’s most recent rally. The Canadian unemployment rate stood at 5.6%, a notch lower than the anticipated 5.7% print. The economy also added 9,300 jobs in December, compared with the expected 5,000 jobs. The strong job addition encouraged traders to prop up the Canadian dollar.
Before the rally began, the USD/CAD pair was trying to consolidate at 1.3650 levels despite the announcement of disappointing US ISM manufacturing PMI data.
After the Canadian labor force survey triggered a USD/CAD sell-off, the greenback again tried to make a comeback on the back of solid US non-farm payrolls data for December. The Bureau of Labor Statistics said the US non-farm sector added 312,000 new jobs, which was nearly double the 177,000 new jobs anticipated by analysts. However, the spike didn’t last long as the unemployment rate increased to 3.9%, up from 3.7% in December. Economists predicted the unemployment rate to remain unchanged in December.
The Canadian dollar’s uptrend was also fueled by the crude oil rally. The West Texas Intermediate increased $0.87 to close at 47.96 dollars a barrel, while Brent crude gained $1.11 to close at 57.06 dollars a barrel. Notably, after two weeks of gains, there was a decline in the number of active US rigs drilling for oil. In the week ended January the 4th, the number of active drilling rigs declined by eight to 1,075 in the US. Likewise, the number of rigs operating in the US oil fields decreased by eight to 877. As previously reported, the Organization of the Petroleum Exporting Countries (OPEC) cartel and Russia had agreed to a production cut of 1.2 million barrels per day in a meeting held in December. The oil production cut plan will be implemented in January 2019.
The US dollar sell-off deepened after the Fed Chairman, Jerome Powell, issued a dovish statement regarding future rate hikes. At a meeting in Atlanta, Powell revealed that the Fed might halt raising interest rates in the months ahead. Powell said, “With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.”
While the strong job data and crude oil rally bolstered the Canadian dollar, the Fed’s dovish statement weakened the greenback.
The price chart indicates that the USD/CAD pair has broken the support at 1.3440 levels. The next significant resistance exists only at 1.3330. Additionally, the money flow indicator is making new lows with a reading below 50. As a result, we anticipate the USD/CAD pair to decline further.
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