USD/CAD eyes Canada, US job reports

The Canadian dollar has edged lower on Friday. In the European session, USD/CAD is trading at 1.3620, up 0.36%. The first week of the new year has been busy. The Canadian dollar sparkled on Wednesday and climbed 1.4%, but has since pared most of those gains.

Canada and the US will wrap up the week with the December employment reports, which could mean some volatility in the North American session. Canada’s job creation in recent months has not impressed, with the exception of a massive gain of 108,300 in October. This was followed by a marginal gain of 10,100 in November, and December is expected to be even smaller, with an estimate of 8,000. The unemployment rate is forecast to inch higher to 5.2%, up from 5.1%. Canada also releases Ivey PMI, which has been stagnant over the past two months, just above the 50.0 threshold which separates contraction from expansion. The PMI is projected to drop to 51.0 for December, down from 51.4 in November.

In the US, the focus will be on nonfarm payrolls and wage growth. Unemployment claims and other employment indicators show that the labour market remains resilient and there is a strong demand for workers despite a slowing economy. The ADP employment report, although not considered a reliable precursor to NFP, jumped to 235,000 in December, crushing the previous reading of 127,000 and the estimate of 150,000. The markets expect NFP to move in the opposite direction, with an estimate of 200,000, down from 263,000 in November.

A soft NFP release would be an indication that the labour market may finally be weakening. For the Fed, this would be good news, as it believes that the labor market must soften in order for inflation to fall. For the markets, always hoping for a dovish pivot, a weak NFP would likely raise speculation that the Fed may be close to winding up its current tightening cycle, and this could translate into the US dollar losing ground.

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USD/CAD Technical

• USD/CAD is putting pressure on resistance at 1.3628. Above, there is resistance at 1.3709
• There is support at 1.3546 and 1.3476