The USD/CAD exchange rate held steady and hovered near iits highest level this year as US bond yields continued rising ahead of the upcoming nonfarm payrolls (NFP) data. It was trading at 1.4400 also ahead of the Canadian jobs numbers. It has also formed a hanging man on the weekly chart, pointing to a potential retreat.
US nonfarm payroll data
The USD/CAD pair’s rally continued as the Bureau of Labor Statistics (BLS) as traders waited fo the upcoming NFP numbers, which will shed light on the health of the American economy.
NFP numbers are highly important because they form part of the Federal Reserve’s dual mandate, which also includes inflation.
Economists polled by Reuters expect the data to show that the economy added 164k jobs in December, up from 194k a month earlier. The private payrolls are expected to be 135k, down from 194k in the previous month.
The unemployment rate is expected to remain at 4.2%, up from last year’s low of 3.5%. A higher jobless rate is a sign that the proportion of American people of working age not in the labor market has continued rising.
The USD will react to the wage growth numbers as the average hourly earnings are expected to come in at 0.3%, lower than the previous 0.4%. On a YoY basis, the figure is expected to be 4.0%.
Wage growth is an important number because higher salaries lead to more consumer spending, which, in theory, may lead to higher inflation.
These numbers will come a few days ahead of the upcoming US consumer inflation data. Economists expect these numbers to reveal that the headline CPI remained at 2.7%, while the core CPI was at 3.3%.
The CPI numbers will be more important than the jobs data because the Fed is putting more emphasis on inflation than the labor market. Officials are concerned that Donald Trump’s policies like tariffs and tax cuts will lead to higher inflation.
Fed Minutes released this week showed that officials remained highly concerned about inflation that they reduced their odds of rate cuts to four to 2. In a statement on Thursday, Jeff Schmid, the head of the Kansas Fed said that the bank was close to achieving its inflation and employment mandate. He also noted that the Fed was about to achieve its neutral rate.
Read more: USD/CAD forecast: here’s why the Canadian dollar has crashed
Canada jobs data
The USD/CAD pair will also be in the spotlight as Canada publishes its economic numbers. Economists see the economy creating 24.9k jobs, lower than the 50.5k. They also see the unemployment rate rising from 6.8% to 6.9%.
These numbers comes a few days after Justin Trudeau announced that he was resigning from being party leader and the prime minister. His official resignation will happen after the liberal party selects its leader, an exercise that may take months.
Canada’s election is expected to occur in October, but the odds are that it will happen before that. Therefore, the loonie may experience some volatility or weakness ahead of that election.
USD/CAD technical analysis
USD/CAD chart by TradingView
The weekly chart shows that the USD/CAD pair has been in a strong uptrend as it soared for 6 weeks.
It recently jumped above 1.3970, the upper side of the ascending triangle pattern. Also, it remains above all moving averages.
On the other hand, the pair has formed a hanging man, a candlestick pattern consisting of a small body and a long lower shadow. If it ends the week at the current level, the pair will likely continue falling as traders target the key support at 1.4300.
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