USD/CAD Edges Lower as Treasury Yields Decline

The dollar eased against the Loonie on Wednesday, and yields dropped following a disappointing jobs report released by ADP. The 10-year yield fell more than the 2-year yield, and the yield differential moved in favor of the Canadian dollar. The surprising miss on the ADP payroll report comes ahead of Friday’s non-farm payroll report. Surprisingly reports earlier in the week showed that Jobs openings remain strong and the sub-component of ISM manufacturing also remains robust.

Technical Analysis

The USD/CAD moved lower but bounced near support. The exchange rate tested the 10-day moving average at 1.2657 and bounced. Resistance is seen near the 50-day moving average at 1.2711. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate has moved out of overbought territory which also reflects accelerating negative momentum. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to a higher exchange rate.

ADP Reports that Private Payrolls Unexpectedly Drop

In a prelude to the government payroll report that is scheduled for Friday, ADP reported that private payrolls for January unexpectedly declined by 301,000 for the month. Expectations were for an increase of 200,000. The pandemic-sensitive leisure and hospitality industry was responsible for more than half of the decline, as companies reported a drop of 154,000. Manufacturing also lost 21,000 positions, which seems contrary to the ISM report, which showed an increase in hiring in the manufacturing sector.