The USD/CAD currency pair is experiencing a period of consolidation following a significant upward movement last Friday. This trend is being shaped by contrasting forces in the market. The anticipation of a more hawkish Federal Reserve has bolstered the USD, while expectations of a substantial interest rate cut by the Bank of Canada are exerting downward pressure on the pair. Additionally, a rebound in crude oil prices is providing support to the Canadian Dollar (CAD), limiting further gains for USD/CAD.
As trading commences for the week, the USD/CAD pair is edging upwards, nearing levels not seen since April 2020. This increase is supported by a slight strengthening of the US Dollar. However, the recent recovery in crude oil prices is also impacting the CAD positively, stifling any significant advances in the USD/CAD exchange rate.
The latest US Nonfarm Payrolls report indicated a rise in the unemployment rate to 4.2% in November, up from 4.1% the previous month. Despite this increase, the number of jobs added exceeded expectations, with 227,000 jobs created compared to the revised figure of 36,000 in October. Steady growth in average hourly earnings suggests a potentially less dovish stance from the Federal Reserve, particularly amid expectations of the economic initiatives from the incoming administration, which could drive inflation.
In Canada, economic challenges are evident with a rise in the unemployment rate to 6.8% in November and only a modest annual growth rate of 1% recorded in the third quarter. This has heightened anticipation of a large interest rate cut by the Bank of Canada. Nevertheless, the recent uptick in crude oil prices, following OPEC+’s decision to delay supply increases, has limited the CAD’s downside potential.
Looking ahead, concerns over reduced demand from China, a major oil importer, could hinder substantial gains in crude prices. Traders may adopt a cautious approach ahead of upcoming US consumer inflation data, which will influence expectations regarding the Fed’s interest rate policy. A key technical level to watch for the USD/CAD pair lies around 1.4175 – 1.4180, where a break above could signal further bullish momentum. Conversely, support near 1.4100 may provide a buying opportunity if the pair experiences any pullback.
