USD/CAD – Canadian Dollar Lower, Investors Eye Nonfarm Payrolls, Wage Growth

The Canadian dollar is lower in the Friday session, erasing the gains seen on Thursday. Currently, the pair is trading at 1.2305, up 0.31% on the day. On the release front, the US will release key employment numbers, and the numbers could affect the movement of USD/CAD. Wage growth is expected to slow to 0.2%. The markets are forecasting that nonfarm payrolls will jump to 181 thousand and the unemployment rate is expected to remain pegged at 4.1%. We’ll also get a look at UoM Consumer Sentiment, which is expected to slow to 95.0 points. There are no Canadian releases to wrap up the week. On Thursday, Canadian Manufacturing PMI pointed to stronger expansion in January, climbing to 55.9 points. This marked the strongest reading since April 2017.

The sixth round of NAFTA talks ended in Montreal last week, with little progress to report. Negotiators are working against a self-imposed deadline to wrap up talks by March, with limited progress. Still, the sides are at least talking, and a Merrill Lynch report has lowered the odds of the United States leaving the pact to 25 percent. The US has demanded far-reaching concessions from Canada and Mexico, such as shifting more auto production to the US. Canada and Mexico are strongly opposed to the US demands, but both economies would take a sharp hit if NAFTA is terminated. At the same time, many US businesses don’t want to blow up NAFTA and are pressuring President Trump to remain in the trade pact. The next round of negotiations is scheduled for late February in Mexico. Bank of Canada Governor Stephen Poloz recently noted that the uncertainties surrounding NAFTA keeps him awake at night, and the Canadian dollar will likely remain under pressure while the negotiations continue.

There were no dramatic announcements from the Federal Reserve on Wednesday, and EUR/USD showed little movement in the Wednesday session. The Fed held the course on monetary policy, with the benchmark rate remaining between 1.25%-1.50%. In the rate statement, policymakers said that they expected the economy to continue to expand at a moderate pace and that the labor market would remain strong in 2018. What was more noteworthy was that the Fed predicted that inflation would rise to the Fed’s 2 percent target this year. This marks an upgrade in the inflation forecast, as the December statement said that inflation was expected to “remain somewhat below 2 percent.” Higher inflation is likely to open the door to tighter monetary policy, and the Fed appears on track for three, or even four rate hikes in 2018, assuming that the US economy remains strong. This policy meeting was the last under Janet Yellen, as Jerome Powell will take over as Fed chair on February 3. The slightly hawkish tone of the rate statement has raised the odds of a rate hike to 83% when the Fed next meets in March.

USD/CAD Fundamentals

Friday (February 2)

• 8:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.2%.
• 8:30 US Nonfarm Employment Change. Estimate 181K. Actual 0.2%
• 8:30 US Unemployment Rate. Estimate 4.1%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 95.0
• 10:00 US Factory Orders. Estimate 1.5%
• 10:00 US Revised UoM Inflation Expectations
• 14:30 US FOMC Member John Williams Speaks

*All release times are GMT

*Key events are in bold

USD/CAD for Friday, February 2, 2018

USD/CAD, February 2 at 7:25 EDT

Open: 1.2267 High: 1.2318 Low: 1.2256 Close: 1.2305

USD/CAD Technical

USD/CAD has posted slight gains in the Asian and European sessions

• 1.2190 is providing support
• 1.2351 is the next resistance line
• Current range: 1.2190 to 1.2351

Further levels in both directions:

• Below: 1.2190, 1.2060 and 1.1903
• Above: 1.2351, 1.2494, 1.2630, and 1.2757

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Friday session. Currently, long positions have a majority (59%), indicative of trader bias towards USD/CAD continuing to move to higher ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.