USD to CAD Price Forecast: Robust Payrolls Boost USD Despite Credit Downgrade

Highlights

• U.S. private payrolls surpass expectations, lifting USD
• U.S. credit downgrade triggers risk aversion, supports dollar
• Canadian loonie impacted by falling commodities, strong USD

Overview

The USD to CAD is trading at its highest level since July 7, as investors overlook a U.S. credit rating downgrade, focusing instead on robust private payrolls data. This reaction is attributed to a mix of strong labor market performance and credit risk concerns, impacting both the U.S. dollar and the Canadian loonie.

Strong U.S. Labor Market

Data released on Wednesday revealed U.S. private payrolls rose beyond expectations in July, boosting the greenback. This positive job growth indicates continued resilience in the labor market, likely to keep U.S. interest rates higher for an extended period. Strong ADP numbers also invoked an upside in U.S. Treasury yields, and traders are eagerly awaiting the U.S. nonfarm payrolls report due on Friday.

U.S. Credit Rating and Treasury Yields

Despite the strong payroll figures, some risk aversion has been observed after Fitch downgraded the U.S. government’s top credit rating, leading to safe-haven buying that supports the dollar. The move triggered a selloff in Wall Street in the previous session, leaving investors in a state of shock and drawing angry responses from the White House.

Canadian Economy and Commodities Outlook

Canada, being a significant producer of commodities such as oil, has faced challenges due to the strength in the U.S. Dollar. This week, gold, silver, and crude oil prices dropped, affecting the Canadian loonie. Investors now await Canadian jobs data, with economists forecasting a 21,100 jobs gain, and are closely watching government bond yields, which touched their highest since July 10 before dipping slightly.

Short-term Forecast

The outlook for USD to CAD appears bullish in the short term, driven by the strength of U.S. labor data and the U.S. Treasury yields. However, the unfolding scenario of the U.S. credit rating downgrade and the release of Canadian jobs data on Friday could add volatility. Investors in both currencies are treading carefully, aware of the sensitivity to these key economic indicators.

Technical Analysis

The USD to CAD 4-hour price has dipped slightly, but remains above the 200-4H and 50-4H moving averages, suggesting a bullish market. The 14-4H RSI shows an overbought condition, indicating potential future price correction. Current price nears the main resistance area, further suggesting possible slight pullback. Despite the potential for minor correction, the primary market sentiment remains bullish.