Employment Data Boosts Canadian Dollar
The USD/CAD pair has extended its retracement slide as the Canadian employment data came out better than expected, pushing the Loonie higher. According to Statistics Canada, the number of employed people rose 150K in January, surpassing the most optimistic estimates. The unemployment rate held steady at 5% against expectations for a modest uptick to 5.1%. The upbeat data has given a boost to the Canadian dollar, as traders start to price in expectations of a more hawkish Bank of Canada policy.
Oil Prices Exert Downward Pressure
The recent rally in crude oil prices has also been contributing to the Canadian dollar’s strength, weighing on the USD/CAD pair. The Loonie is known to be highly correlated with oil prices, and with the ongoing bullish sentiment around crude oil, the currency is likely to continue to strengthen. This has exerted downward pressure on the USD/CAD pair, which has been struggling to gain any bullish momentum.
Divergent Central Bank Policy Outlooks
The divergent central bank policy outlooks of the Federal Reserve and the Bank of Canada have also been contributing to the weakness in the USD/CAD pair. The US Dollar has been standing tall near a one-month high, supported by recent hawkish commentary by several FOMC members. With the looming risk of a recession and a weaker tone around the equity markets, the safe-haven appeal of the USD is expected to remain strong. However, the Bank of Canada is expected to pause its policy-tightening cycle following eight rate hikes in the past 11 months. This divergence in central bank policy outlooks is likely to continue weighing on the USD/CAD pair.
Potential for Dip-Buying
Despite the recent weakness in the USD/CAD pair, there is potential for some dip-buying to emerge. With the Fed expected to maintain its hawkish stance to tame inflation, and the Bank of Canada pausing its policy-tightening cycle, the outlook for the USD/CAD pair is somewhat uncertain. Bearish traders should exercise caution, as there is potential for some dip-buying around the pair.
Conclusion
The Canadian employment data and oil prices have been weighing on the USD/CAD pair, pushing it lower. The divergent central bank policy outlooks of the Federal Reserve and the Bank of Canada are also contributing to the weakness in the pair. While the outlook for the pair is somewhat uncertain, with potential for dip-buying to emerge, bearish traders should be cautious. Overall, the current market conditions suggest that the USD/CAD pair is likely to continue trading within a range in the near term, with the Loonie potentially gaining further strength.
