USD to CAD Price Forecast: Resilient US Labor Market Sparks Fed Rate Hike Expectations

Highlights

• Steady USD to CAD on strong US labor market data
• Expectations of 25 basis point Fed rate hike
• Canadian retail sales data crucial for future rate decisions

Overview

The USD to CAD exchange rate remained steady on Friday, driven by indications of the U.S. labor market’s resilience, potentially influencing the Federal Reserve’s stance on interest rates. With the central bank’s interest rate and policy decision looming next week, investors closely scrutinized data to gauge the likely trajectory of monetary policy.

Improving US Initial Claims Raise Rate Hike Concerns

A pleasant surprise came as data revealed a decline in new unemployment claims, reaching a two-month low and signaling ongoing tightness in the labor market. This development suggested that the labor market in the U.S. continues to display strength, despite previous Fed rate hikes. As a result, markets anticipate a 25 basis point hike from the Federal Reserve next week, with the odds of further rate increases edging higher in light of the recent data.

USD Supported by Rising Treasury Yields

Boosting the USD to CAD further were rising U.S. Treasury yields. Investors assessed the state of the economy and eagerly awaited fresh data leading up to the Federal Reserve’s upcoming meeting. Data on June’s existing home sales and weekly initial jobless claims will play a pivotal role in influencing the central bank’s decisions regarding monetary policy going forward.

It’s essential for investors to weigh the central bank’s guidance and remarks from Fed Chair Jerome Powell after the meeting, as the outlook for the remainder of the year remains uncertain. Last week’s consumer inflation reading showed a slight ease in rising prices, indicating the Fed’s restrictive policies are taking effect, yet remaining above the central bank’s target range of 2%.

Canadian Retail Sales on Tap

Meanwhile, on the Canadian economic front, retail sales data is set to be released at 12:30 GMT. With Core Retail Sales expected to rise by 0.2% and Retail Sales by 0.5% in May, policymakers will carefully consider these figures in their decision-making process. Last week, the Bank of Canada raised interest rates by 25 basis points, emphasizing that future policy adjustments would depend on incoming data. A stronger-than-expected retail sales reading may prompt further rate hikes, while a softer reading could lead to a pause in rate adjustments.

Short-Term Outlook:  Data, Fed Dependent

In conclusion, the USD to CAD exchange rate’s steadiness is underpinned by a resilient U.S. labor market and expectations of an upcoming rate hike by the Federal Reserve. Investors keenly await key economic data releases to gain insights into future monetary policy decisions. As the economic landscape evolves, both domestic and international factors will play a crucial role in shaping the currency pair’s short-term trajectory, and traders should keep a close eye on the developments ahead.

Technical Analysis

The USD to CAD market shows a marginal increase from the previous 4-hour close, with the current price at 1.3176. The 200-4H moving average indicates a downward trend, while the market’s proximity to the 50-4H moving average (1.3184) suggests a neutral to bearish stance. The 14-4H RSI reading of 49.08 also indicates a neutral stance.

The main support area is between 1.3118 and 1.3142, with the main resistance area ranging from 1.3214 to 1.3232. The overall market sentiment appears cautious, with potential downward bias given the proximity to the 50-4H moving average and downward trend indicated by the 200-4H moving average.

Crossing to the strong sides of the moving averages and the main resistance zone could put the USD to CAD in a bullish position.