USD/CAD Return to 1.33 hinged on US Nonfarm Payrolls

It is a busy day ahead for the USD/CAD. However, it is a quiet day for the Loonie, on the economic data front. Q2 labor productivity numbers are due out. The stats coincide with US labor market figures for August, so we expect the markets to brush aside stats from Canada.

With the Bank of Canada’s September monetary policy decision around the corner, there have been no stats or market events to change expectations. The markets currently expect the BoC to stand pat on policy.

On Thursday, building permits tumbled, reflecting deteriorating housing market conditions that could become a bugbear for the BoC, which is looking to tackle inflation. Oil prices have also been on a downward trend, easing pressure on the Bank to make a move.

Today, with no major stats to consider, sentiment towards crude oil demand and US economic indicators will provide the USD/CAD pair with direction. Going into the Friday session, monetary policy divergence remains firmly in favor of the greenback.

USD/CAD Price Action

At the time of writing, the USD/CAD was down 0.09% to 1.31440.

A mixed morning saw the USD/CAD rise to an early high of 1.31696 before falling to a low of 1.31335.

Technical Indicators

The USD/CAD will need to move through the 1.3161 pivot to target the First Major Resistance Level (R1) at 1.3202 and the Thursday high of 1.32077.

Going into the US session, nonfarm payrolls and wage growth figures will have a material impact on the pairing, with positive numbers likely to support a run at 1.33.

In the event of an extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3250. The Third Major Resistance Level (R3) sits at 1.3339.

Failure to move through the pivot would bring the First Major Support Level (S1) at 1.3113 into play.

Barring a rebound in crude oil prices or particularly weak US stats, the USD/CAD should steer clear of sub-1.3050. The Second Major Support Level (S2) at 1.3071 should limit the downside.

The Third Major Support Level (S3) sits at 1.2982.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bullish signal. This morning, the USD/CAD pair stood above the 50-day EMA, currently at 1.30569.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals for the USD/CAD pair.

Tuesday’s break out from the 50-day EMA supports a return to 1.33. However, a USD/CAD fall through S1 (1.3113) and S2 (1.3071) would bring the 50-day EMA (1.30569) into play.

The US Session

It is a big day ahead on the economic calendar. For the Dollar, nonfarm payrolls and wage growth figures will be the market area of focus. Following a string of positive labor market numbers on Thursday, another jump in hiring could force the Fed to take more aggressive maneuvers to slow the pace of hiring and bring inflation back to target.

Another spike would push the DXY through to 110 levels.

Other stats include factory orders for July. However, the numbers are unlikely to influence the Fed and therefore the dollar.

Following the labor market numbers, any FOMC member chatter will also need consideration.