USD/CAD: Loonie Maintains Range Play Ahead of U.S. Inflation Data

The Canadian dollar largely remained range-bound in lacklustre trade against its U.S. counterpart on Tuesday as investors remained cautious ahead of U.S. inflation data later this week.

“It will be an extremely quiet week for economic data, leaving the focus on a pair of BoC events. Deputy Governor Beaudry and Governor Macklem are both scheduled to speak on Tuesday, although their comments will be limited to brief (opening/closing) remarks,” noted Robert Both, Macro Strategist at TD Securities.

Today, the USD/CAD was trading in a range of 1.2424- 1.2459. Still, the Canadian dollar gained about 2.3% last month after depreciating around 0.5% in September.

On Friday, Statistics Canada data showed that the Canadian economy added 31,200 net jobs in October, entirely in full-time work, but missed analyst expectations. The unemployment rate fell to 6.7%.

“The Canadian dollar is moderately weaker on the week, moving broadly in line with the bloc of commodity/pro-cyclical currencies. The question now is whether the upside correction in USD/CAD will extend meaningfully above 1.2500. We think this should be down mostly to external factors, as the domestic story of imminent BoC tightening remains likely supportive,” noted Francesco Pesole, FX Strategist at ING.

“(Friday’s) jobs data in Canada should see a slowdown in hiring but unless we see a negative headline number we doubt CAD will take a hit today. Still, with a balance or risks skewed to the upside for USD ahead of US NFP (as discussed above), we think a move above 1.2500 in USD/CAD could be on the cards today. On the other hand, we’d probably need to see very strong Canadian jobs read to prompt markets to shift their expectations for the first BoC rate hike from March to January (currently 70% priced in) and ultimately send USD/CAD back towards 1.2400.”

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.02% higher at 94.068. Most major currencies were little changed as FX traders waited for U.S. inflation data later this week. A stronger than expected reading will prompt the Federal Reserve to tighten monetary policy sooner than expected.

The greenback gained on Friday the U.S. employment report showed that jobs were up more than expected during October as COVID-19 infections decreased over the summer. After a summer slump, the labour market rebounded in October adding 531,000 jobs and trimming the unemployment rate to 4.6%.

It is highly likely that the world’s dominant reserve currency, the USD, will rise by end of the year, largely due to the expectation of at least one rate hike next year. With the dollar strengthening and a possibility that the Federal Reserve will raise interest rates earlier than expected, the USD/CAD pair may experience a rise.

Canada is the world’s fourth-largest exporter of oil, which edged higher as positive signs for global economic growth supported the outlook for energy demand. At the time of writing, U.S. West Texas Intermediate (WTI) crude was trading 0.67% higher at $82.46 a barrel. Higher oil prices lead to higher U.S. dollar earnings for Canadian exporters, resulting in an increased value of the loonie.