The US dollar surged against the Canadian dollar on Friday after the Bureau of Labor Statistics reported better than anticipated job additions in July. The robust jobs data watered down the hopes of a Fed rate cut in the forthcoming policy meeting. Furthermore, the negative employment change reported by Statistics Canada also kept the Canadian dollar weakened against the greenback.
The US Labor Department stated that the economy added 224,000 jobs in June, after inching up by a downwardly revised 72,000 jobs in the earlier month. Economists had anticipated the economy to add roughly 160,000 jobs in the reported month.
At the same time, Statistics Canada published the Canadian Employment Change data, which indicated that the economy had lost 2,200 jobs in June, compared with the 27,700 jobs that were added in the previous month. Analysts had anticipated the economy to add 10,000 jobs in the reported period.
Until the release of US jobs data, investors had high expectations for a Fed rate cut in the upcoming monetary policy meeting. In fact, CME Group’s FedWatch tool indicated that the percentage of market participants anticipating a rate cut had increased to nearly 100%.
In June, the Fed stated that it would take appropriate decisions to sustain the present economic growth, the longest in US history. After the jobs data was released, the odds declined to 94%. It is a known fact that a rate cut weakens a currency and vice-versa.
Commenting on a rate hike, Lindsay Bernum, an investor at Smith Capital Partners said: “I don’t think they have to bring a 25 basis-point rate cut based on this report, but we still need to get through the data for the rest of the month.”
Gregory Faranello, head of US rates at Amerivet Securities also opined that the solid jobs data may affect Fed rate decision. Faranello said, “The jobs number was solid. The real theme now will be shifting very quickly to what the number means in the context of what we’re pricing in for the Fed in July.”
However, not everyone agrees with the opinion of Gregory Faranello. Erik Bregar, head of FX strategy at the Exchange Bank of Canada, believes that solid jobs data may not be enough to discourage the Fed from slashing interest rates. Bregar said, “If you look at bond markets around the world, they’re worried about something. I don’t think central banks have the guts to go against the bond market.”
The strong jobs data and doubts over the Fed rate cut in July are expected to keep the greenback strong in the days ahead.
Technically, the USD/CAD pair has reversed after testing the support at 1.3050. The currency pair is also trading above its 50-day moving average. Additionally, the oscillator of the moving average also has a positive reading. As a result, we can expect the currency pair to remain bullish in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
