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Loonie Loses Luster: Weak Jobs Data Sends Canadian Dollar to 4-Month Low
Warren Takunda
Weak Canadian jobs data sinks Loonie to 4-month low vs USD. Strong US jobs cast doubt on rate cuts. USD/CAD stuck in a range, next move hinges on breaking key support or resistance.
The Canadian dollar (CAD) stumbled on Monday, slipping to its lowest level in four months against its US counterpart (USD). This weakness comes on the heels of a disappointing jobs report released by Canada on Friday, which contrasted sharply with robust employment data from the United States.
Canada's Job Market Falters
Canada's employment figures for March fell short of expectations, with a meager decline of 2,200 jobs. This follows a robust gain of 40,700 jobs in February and falls considerably short of the market estimate of 25,000 new positions. This marks the first decline in employment in eight months, raising concerns about the health of the Canadian labor market.
The unemployment rate also climbed slightly, rising from 5.8% to 6.1%, exceeding market predictions of 5.9%. This 0.3% increase is the largest in nearly two years and reflects a growing population that is outpacing job creation.
US Jobs Boom Casts Shadow on Loonie
Across the border, the US economy painted a starkly different picture. US non-farm payrolls surged to a whopping 303,000 in March, exceeding expectations by a significant margin and highlighting the resilience of the American labor market. This robust number follows a revised gain of 270,000 jobs in February.
The unemployment rate in the US also dipped lower, falling to 3.8% from 3.9%, defying market forecasts of 3.9%. Wage growth, however, remained steady at 4.1%, down slightly from the previous reading of 4.3%.
Rate Cut Expectations on Hold
The contrasting job reports have cast some doubt on the timing of potential interest rate cuts by both central banks. While the Bank of Canada (BoC) is still widely anticipated to hold rates steady at 5% during its meeting this week, the strong US data might prompt the Federal Reserve to delay its own rate cuts.
Prior to the jobs report, markets anticipated an initial rate cut from the Fed in June or July. However, these expectations have been trimmed, with an 88% chance of a cut priced in for September. The Fed is still expected to maintain rates at its May 1st meeting.
Technical Outlook: A Tug-of-War at the Support LevelLoonie Loses Luster: Weak Jobs Data Sends Canadian Dollar to 4-Month Low_1
The USD/CAD pair currently finds itself caught in a tug-of-war between resistance at 1.3606 and support at 1.3505. The stochastic indicator, which measures price momentum, is currently flashing negative signals, suggesting a potential downward move in the near term. However, a clear break above resistance could lead to a surge in the USD/CAD, potentially reaching 1.3700.
For the bulls to regain control, they'll need to see a reversal of the negative stochastic signal and a decisive break above the resistance level. This could be fueled by positive surprises from the BoC meeting or a broader weakening of the US dollar. Conversely, a breach of the crucial support level at 1.3505 could trigger a correction, potentially pulling the pair down to 1.3440 initially, with a possible extension to 1.3390. This scenario would likely be supported by continued negative signals from the stochastic indicator and a sustained strengthening of the Canadian dollar.
In the absence of major surprises, the USD/CAD pair is likely to remain range-bound in the near term, with the outcome of the tug-of-war at the support level ultimately determining the next directional move.