In the early Asian session on Friday, the USD/CAD currency pair is holding steady around the 1.3500 level. This stability comes on the heels of mixed economic indicators from the United States, where the ISM Services PMI exhibited stronger-than-expected performance, juxtaposed with the private sector payroll growth showing the smallest increase since 2021.
The US Dollar Index, a key measure of the dollar’s strength, has continued its decline, approaching the important psychological barrier of 101.00. Market participants appear to be adopting a cautious stance as they await the release of significant economic reports from both the US and Canada later in the day.
Recent data from Automatic Data Processing revealed that private sector employment in the US rose by 99,000 in August, a figure that fell short of expectations and followed a downwardly revised growth of 111,000 in July. Additionally, the latest weekly Initial Jobless Claims report showed a slight decrease, with claims totaling 227,000, indicating a resilient labor market, albeit with signs of slowing growth. Compounding this, the ISM Services PMI showed modest improvement, rising from 51.4 to 51.5 in August.
Market concerns have heightened due to a rise in the US unemployment rate in July, raising fears of a potential recession and leading to speculation about further interest rate cuts by the Federal Reserve. The upcoming employment data — comprising Nonfarm Payrolls, the unemployment rate, and average hourly earnings — could play a pivotal role in shaping the Fed’s monetary policy trajectory, particularly if the labor market data indicates weakness.
Conversely, the outlook for the Canadian dollar is influenced by the prospects of additional interest rate cuts from the Bank of Canada, which recently lowered its benchmark rate for the third time in succession. This backdrop suggests potential downside pressure on the Loonie, especially as the Canadian employment figures are set for release on Friday.
