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There are two key fundamental aspects that are pushing the USDCAD in opposite directions. Which one is stronger and which will win out will depend on the evolution of both economic data and political events. Therefore, we could see some increased fluctuation in the currency pair over the coming months. And tomorrow there is the release of some crucial economic data that could have an impact on future expectations.

The fundamental issues in question that could guide the loonie over the coming months can be roughly summarized:

• Policy: Specifically the widening gap in monetary policy between the BOC and the Fed, as the Canadian central bank holds rates steady while its American counterpart is still expected to keep hiking. This aspect likely weighs more in the longer term, as investors adjust to varying expectations on rates and the economic outlook.
• Oil: The price of crude rose substantially recently after OPEC+ announced voluntary curtailments of production. However, Canada’s main buyer is the US, and expectations for demand for fuel south of the border will depend a lot on how the economy is seen developing in the coming months.

Since whether or not the US slips into a recession is seen as dependent in large part on how aggressive the Fed continues to be with its hikes, the two aspects are substantially linked. Given the degree of cross-border trade between the countries, if the Fed can bring inflation down substantially, the BOC will be in a better position to ease rates to support the economy.
 

What we’re looking forward to

Canadian jobs figures tend to fluctuate wildly, so the immediate market impact of the number of jobs created can be muted given the context. What investors are likely looking at are signs of a slowing economy that would push the BOC to move from its current pause stance to a cutting stance. That could weaken the Loonie.

Another option is substantial overperformance in the labor market which could get the BOC worried that inflation might pick up again. However, that’s likely to be seen more in ratios than a headline jobs creation number, since the latter tends to fluctuate substantially. What traders are likely to be most interested in is a sign of unexpected tightness in the jobs market that could push labor costs higher. So focus likely on unemployment and participation rate.
 

The figures in focus

The consensus is that Canada added 10K jobs last month, which would be less than half of those added in February at 21.8K. However, that’s expected to be driven entirely by increases in part-time employment, with full-time job numbers expected to show a decline of 5.0K.

The unemployment rate is expected to rise to 5.2% compared to 5.0%, despite an expected drop in the participation rate to 65.5% compared to 65.7%. Unlike previous events where the release of Canadian jobs numbers coincided with US NFP, this time around the US jobs data will come out a day later when the markets are closed for a holiday.

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