**US Dollar Strengthens on Robust Labor Data, Pushing USD/CAD Higher Amid Canadian Dollar Weakness**
*Adapted and expanded from the original article by VT Markets*
The US dollar solidified its strength in early June 2024 as a stronger-than-expected labor market report bolstered confidence in the US economy. This momentum propelled the USD/CAD currency pair to higher levels as the Canadian dollar faced downward pressure due to sluggish domestic data and declining oil prices.
The interplay between stronger US labor statistics, the Federal Reserve’s monetary policy outlook, and contrasting economic indicators from Canada created a significant divergence between the two currencies, attracting continued attention from forex traders and financial markets.
## Key Takeaways
– The US economy added more jobs than expected in May 2024, boosting the dollar.
– Canadian labor data fell short, raising concerns over its economic momentum.
– Oil prices declined, putting added pressure on the commodity-linked Canadian dollar.
– The market reevaluated expectations for interest rate cuts in both the US and Canada.
– USD/CAD moved higher, showing clear bullish momentum for the greenback.
## Strong US Jobs Report Lifts the Greenback
The US labor market beat expectations in May 2024, providing strong support for the US dollar. According to data released by the Bureau of Labor Statistics:
– The Nonfarm Payrolls (NFP) report showed an addition of 272,000 jobs, above the market forecast of 185,000.
– Average hourly earnings rose 0.4% month-over-month and 4.1% year-over-year, implying lingering wage inflation.
– The unemployment rate slightly increased to 4.0% from 3.9%, a modest surprise but not enough to discourage confidence in overall labor strength.
This robust employment data reinforced the notion that the US economy remains resilient, potentially allowing the Federal Reserve to delay interest rate cuts or even hold rates higher for longer in 2024.
Higher wages and strong hiring suggest that consumer spending, a key driver of the US economy, is likely to remain robust. This underlying strength continues to support the greenback’s performance against major peers, including the Canadian dollar.
## Rate Cut Speculations Shift Following Jobs Data
Prior to the release of the jobs data, many market participants had been pricing in a potential rate cut from the Federal Reserve in September 2024. However, strong labor market indicators have scaled back such expectations.
– According to CME FedWatch Tool, the probability of a September rate cut fell below 50% following the report.
– Some analysts now forecast the first rate cut could be delayed until November or later, depending on future inflation and employment trends.
San Francisco Fed President Mary Daly and other Fed officials have recently commented that the central bank needs to see more definitive data showing a return to the 2% inflation target before easing policy.
This hawkish monetary stance continues to underwrite dollar strength, particularly against currencies with more dovish central banks.
## Canadian Dollar Pressured by Weak Domestic Data and Lower Oil Prices
While the US benefitted from strong economic figures, Canada faced the opposite reality, adding to downward pressure on the loonie.
– Canada’s employment report for May showed a modest gain of only 26,700 jobs, compared to an expected 35,000.
– The unemployment rate ticked up to 6.2%, the highest since January 2022.
– Wage growth moderated, signaling a potential slackening in labor market tightness.
These figures suggest a cooling Canadian economy, which aligns with other indicators like slow GDP growth in Q1 and tepid consumer spending. In response to the growing economic weakness, the Bank of Canada (BoC) initiated its first rate cut in four years.
### Bank of Canada Cuts Rates
On June 5, 2024, the BoC cut its benchmark interest rate by 25 basis points to 4.75%, citing softening inflation and slipping economic momentum.
Bank of Canada Governor Tiff
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