USD/CAD: Loonie Maintains Range Play Ahead of U.S. Jobs Report; Omicron Fears Loom

The Canadian dollar largely remained range-bound in lacklustre trade against its U.S. counterpart on Thursday as investors remained cautious ahead of U.S. jobs reports later this week and they also eagerly await information on the Omicron coronavirus variant and its impact on the global economy.

“The Canadian Dollar remains under pressure and just off two months lows against the Buck after getting hit on declines in US equities and oil. Better than expected Canada GDP and building permits have been overshadowed by the risk-off themes. Key standouts on today’s calendar include Eurozone unemployment, Eurozone producer prices, US initial jobless claims, and a batch of Fed speak,” noted analysts at LMAX.

“Finally signs of a major bottom in the works after a severe decline from 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards the next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.”

Today, the USD/CAD pair traded in a range of 1.2774-1.2829. The Canadian dollar hit its lowest level in over two months on Friday. After gaining about 2.3% in October, the loonie weakened over 3.1% last month.

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.17% lower at 95.871. The Invesco DB US Dollar Index Bullish Fund, which is designed for investors who want a cost-effective and convenient way to track the value of the U.S. dollar relative to a basket of the six major world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc – ended 0.25% higher at 25.77 on Wednesday.

Last week, minutes of the U.S. Federal Reserve meeting confirmed market expectations that the Fed will raise rates sooner than other major central banks. The greenback rose to 16-month highs against most other major currencies because of the hottest U.S. inflation reading in a generation that pushed investors to bet that interest rates are likely to rise sooner than previously thought.

The nonfarm payrolls probably increased by 550,000 jobs in November up from 531,000 jobs seen in October, according to Reuters. A closely watched employment report for November will be published on Friday by the Labor Department.

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 the market await OPEC+ decision. Oil prices hit over three-month low on Tuesday after Moderna’s chief questioned the effectiveness of COVID-19 vaccines against the Omicron, which shook the markets and raised concerns about oil demand, Reuters reported.

At the time of writing, U.S. West Texas Intermediate (WTI) crude was trading 0.40% higher at $65.8 a barrel. Higher oil prices lead to higher U.S. dollar earnings for Canadian exporters, resulting in an increased value of the loonie.

“The 3 Commodity units (AUD, NZD and CAD) now appear vulnerable on 2 fronts – (1) as risk currencies trading in a risk-off environment created by the new Covid strain; and (2) the 3 units having one of the more aggressive central bank rate hike profiles discounted by markets. Against USD though, the 3 units could find better support (as USD is probably even more vulnerable to the removal of the more aggressive Fed rates pricing),” noted analysts at Citi.