Title: USD/CAD Technical Outlook: Bullish Momentum Builds Post U.S. and Canadian Economic Data
Source: Original reporting by InvestingLive.com
The USD/CAD currency pair has displayed strong bullish momentum following the release of mixed economic data from both the United States and Canada. As forex markets digested economic releases late this week, including Canadian employment figures and U.S. Non-Farm Payrolls (NFP), traders witnessed a significant move to the upside for USD/CAD. The rally suggests an emerging shift in sentiment, underpinned by diverging economic performance and central bank expectations between the two countries.
In this in-depth analysis, we will explore the latest developments influencing USD/CAD, key technical indicators, macroeconomic drivers, and potential scenarios traders should monitor heading into the coming weeks.
Highlights:
– USD/CAD breaks a key level of resistance, signaling bullish breakout potential
– Differing economic trajectories between Canada and the U.S. continue to drive CAD weakness
– Technical patterns indicate possible continuation of the uptrend
– Wider Federal Reserve and Bank of Canada divergence impacts expectations
Macroeconomic Background
The latest move higher in USD/CAD came after market participants assessed several important data releases:
1. U.S. Job Data Shows Strength
– The U.S. labor market held steady with another month of solid job gains.
– Non-Farm Payrolls (NFP) grew by 187,000 in the latest print for August 2023, slightly surpassing analyst expectations.
– While not overwhelmingly strong, the numbers demonstrated resilience and added to the narrative that the Federal Reserve might keep interest rates elevated for longer.
– Average hourly earnings increased by 0.3%, maintaining upward wage pressures, a key factor in Fed inflation policy.
2. Canadian Employment Report Disappoints
– Canada’s jobs report mirrored a slowing trend in the labor market.
– The economy added just 40,000 jobs, primarily in part-time employment, which was below consensus expectations.
– The unemployment rate ticked up from 5.4% to 5.5%, indicating slack in the labor market.
– Wage inflation in Canada remains tame compared to the U.S., giving the Bank of Canada (BoC) more leeway to consider rate pauses or cuts.
Diverging Monetary Policy Outlooks
The U.S. Federal Reserve and the Bank of Canada are at different stages in their monetary policy path. These differences are increasingly driving price action in pairs like USD/CAD.
– Federal Reserve
– The Fed has reiterated its commitment to bringing inflation down to 2%.
– With inflation still hovering above target and labor markets remaining tight, Fed officials have suggested interest rates may remain elevated into 2024.
– Strong economic data supports the Fed’s ability to keep rates “higher for longer.”
– Bank of Canada
– The BoC has paused in recent meetings, citing economic slowdown concerns.
– Softer domestic data and rising unemployment reduce the likelihood of further hikes.
– Market participants now price in potential rate cuts in Canada before the U.S. moves, hurting the CAD.
Technical Analysis: USD/CAD Bullish Breakout
The daily chart for USD/CAD shows compelling technical signals that suggest further upside may be in store. This analysis is supported by a confluence of indicators as well as a broader shift in market sentiment.
1. Resistance Break
– Price action has broken through the key resistance zone around the 1.3600 level, a threshold that capped bullish moves in previous sessions.
– A clear daily close above this level validates the breakout, indicating a bullish trend formation.
2. Moving Averages Confirmation
– The pair is now trading above its 50-day and 200-day Simple Moving Averages (SMA), a widely recognized bullish indicator.
– The 50-day SMA is positioned above the 200-day SMA (a golden cross), further strengthening the uptrend
Read more on USD/CAD trading.