USD/CAD Rates To Watch Following Canada Employment Report


10 and one 10 us dollar bill

USD/CAD showed a limited reaction to a larger-than-expected decline in Canada Employment, and key market trends may continue to influence the exchange rate as the US Dollar still reflects an inverse relationship with investor confidence.


USD/CAD appears to be stuck in a narrow range after taking out the 2020 low (1.2688) earlier this week, and swings in risk appetite may sway the exchange rate ahead of the next Bank of Canada (BoC) meeting on January 20 as the central bank plans to carry out its quantitative easing (QE) program “at its current pace of at least $4 billion per week.”

Image of DailyFX economic calendar for Canada

It remains to be seen if the fresh data prints coming out of Canada will influence the monetary policy outlook as the employment report shows a 62.6K contraction in December versus forecasts for a 27.5K decline, but the BoC may continue to endorse a dovish forward guidance at its first meeting for 2021 as Governor Tiff Macklem and Co. “remain committed to providing the monetary policy stimulus needed to support the recovery and achieve the inflation objective.”

Until then, key market themes may continue to influence USD/CAD as the BoC acknowledges that “a broad-based decline in the US exchange rate has contributed to a further appreciation of the Canadian dollar,” and the tilt in retail sentiment also looks poised to persist as traders have been net-long the pair since May 2020.

Image of IG Client Sentiment for USD/CAD

The IG Client Sentiment report shows 68.91% of traders are still net-long USD/CAD, with the ratio of traders long to short standing at 2.22 to 1. The number of traders net-long is 5.56% higher than yesterday and 18.40% higher from last week, while the number of traders net-short is 7.46% higher than yesterday and 33.33% higher from last week.

The rise in net-short interest comes as the rebound from the weekly low (1.2630) appears to have stalled ahead of the weekend, while the rise in net-long interest has fueled the crowding behavior in USD/CAD as 61.74% of traders were net-long the pair earlier this week.

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