USD to CAD Price Forecast: Choppy Trade as Investors Brace for Key Labor Market Reports

Highlights

• USD to CAD trading lower after earlier gains.
• Focus on U.S. and Canada’s labor market reports.
• Canadian economy contracts, affecting borrowing costs.

Overview

The USD to CAD Forex pair started the week trading lower, reversing its earlier gains. Traders are gearing up for an eventful week with a focus on Friday when both the U.S. and Canada will release their labor market reports. The currency pair had recently reached its highest level since July 11, driven by reactions to preliminary data indicating a contraction in the Canadian economy for June. This contraction might be a signal that higher borrowing costs are starting to impact economic activity.

In May, Canada’s economy managed to grow by 0.3%. However, the projection for June suggests a 0.2% contraction, indicating a potential slowdown. If this trend continues, it could mark the end of the Bank of Canada’s monetary tightening campaign, which had previously resulted in interest rates reaching a 22-year high. Karl Schamotta, the chief market strategist at Corpay, noted that the underlying momentum in the Canadian economy is weakening as the impact of higher borrowing costs begins to bite.

In contrast, the U.S. experienced its slowest annual inflation rise in over two years during June, with underlying price pressures receding. This trend could potentially push the Federal Reserve closer to ending its rapid interest rate hiking cycle, which has been reminiscent of the 1980s.

Optimism for a soft landing of the U.S. economy had a positive effect on Wall Street and oil prices, considering oil is a major export for Canada. U.S. crude oil futures settled 0.6% higher at $80.58 a barrel. As a result, Canadian government bond yields fell across the curve.

Looking back to last week, the Federal Reserve implemented a much-anticipated quarter-point hike, bringing rates to their highest level in over 22 years. Fed Chair Jerome Powell stated that data-driven decisions will be made on a “meeting-by-meeting” basis.

Looking ahead to the current week, investors are eagerly awaiting the big jobs report. Economists predict that the U.S. economy will have added 200,000 jobs in July, following an increase of 209,000 nonfarm payrolls in June. Meanwhile, the Canadian economy is expected to add 15.5K new jobs, accompanied by a slight uptick in the unemployment rate.

As the week progresses, traders and investors will closely monitor economic data releases, labor market reports, and central bank decisions that can potentially impact the USD to CAD Forex pair. With various factors at play, the currency market remains dynamic and full of opportunities for market participants.

Technical Analysis

The USD to CAD is exhibiting mixed signals on the 4-hour chart. The current price is slightly below the previous close, suggesting a minor bearish sentiment. However, it trades above both the 200-4H and 50-4H moving averages, implying a bullish bias. The 14-4H RSI hovers just above the neutral level, indicating moderate bullish momentum.

The market is in a consolidation phase, trading between the main support and resistance areas. Traders should closely monitor price action for a breakout to determine the next trend direction. The market currently awaits clearer cues to establish a definitive bullish or bearish stance. A successful test of the moving averages will suggest an upside bias.