Canadian Dollar steady after packed US economic calendar
- US positive labor market data was initially bearish on the USD, but the currency recovered losses.
- The ISM Manufacturing PMI came in weaker than expected, suggesting a contraction in the manufacturing sector.
- Canadian Dollar remains under pressure due to rate cut expectations.
The USD/CAD currency pair saw a mild decline in Friday’s session, reaching a low of 1.3920. Positive labor market data in the United States, including a steady Unemployment Rate and rising Average Hourly Earnings, initially weighed on the USD, but the currency later recovered its losses. A weaker-than-expected ISM Manufacturing PMI also influenced market sentiment.
Additionally, expectations of further interest rate cuts by the Bank of Canada (BoC) continue to exert downward pressure on the Canadian Dollar.
Daily digest market movers: Canadian Dollar mildly declined after mixed US data
- Nonfarm Payrolls in the US rose by 12,000 in October, missing the market expectation of 113,000 by a wide margin.
- The Unemployment Rate remained steady at 4.1% as expected, while Average Hourly Earnings rose expectedly by 4.0%.
- The immediate effect of the labor market data was bearish on the US Dollar, while it recovered all intraday losses.
- The ISM Manufacturing PMI for October has come in surprisingly weak, declining to 46.5 compared to expectations of 47.6.
- Rising expectations of more interest rate cuts by the BoC continue to weigh on the CAD.
- The BoC has already reduced its key borrowing rates by 125 basis points to 3.75% this year.
USD/CAD technical outlook: Bulls start to give up, consolidation coming
The Relative Strength Index (RSI) is in the overbought area with a value of 76, however, the RSIhas formed a declining slope. This suggests that buying pressure is declining, similar to the direction given by the lower green bars of the Moving Average Convergence Divergence (MACD).
Supports: 1.3870, 1.3850, 1.3830, Resistances: 1.3930, 1.3950, 1.3980.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.