Updates to Canada’s Employment report may curb the recent rebound in USD/CAD as the economy is expected to add another 19.0K jobs in July.

After delivering a 25bp rate-hike in June, data prints pointing to a strengthening labor market may encourage the Bank of Canada (BoC) to further normalize monetary policy over the coming months as the ‘Governing Council expects that higher interest rates will be warranted to keep inflation near target.’ In turn, Governor Stephen Poloz & Co. may continue to prepare Canadian households and businesses for higher borrowing-costs at the next meeting on September 5, and a positive development may ultimately spark a bullish reaction in the Canadian dollar as it boosts bets for an imminent BoC rate-hike.

However, a below-forecast employment print may fuel the recent advance in USD/CAD as it dampens the outlook for growth and inflation, with the Canadian dollar at risk of facing headwinds over the near-term as market participants push out bets for the next BoC rate-hike. 

IMPACT THAT CANADA EMPLOYMENT REPORT HAS HAD ON USD/CAD DURING THE LAST PRINT

June 2018 Canada Net Change in Employment

USD/CAD5-Minute Chart

Canada employment bounced back 31.8K in June after contraction 7.5K the month prior, while the jobless rate unexpectedly climbed to 6.0% from 5.8% during the same period as the labor force participation rate climbed to 65.5% from 65.3% in May. A deeper look at the report showed full-time employment increasing 9.1K during the month, with part-time jobs rising 22.7K, while hourly earnings narrowed to 3.5% per annum from 3.9% in May.

The initial uptick in USD/CAD was short-lived, with the exchange rate pulling back from the 1.3140 region to end the day at 1.3089. 

USD/CAD DAILY CHART

(Click on image to enlarge)

• Near-term outlook for USD/CAD remains capped by the 1.3130 (61.8% retracement) region, and there appears to be a broader shift in dollar-loonie behavior as both price and the Relative Strength Index (RSI) track the bearish trends carried over from June.
• May see USD/CAD face range-bound prices amid the string of failed attempts to close below the 1.2980 (61.8% retracement) to 1.3030 (50% expansion) region, but a close below the stated region brings the downside targets back on the radar.
• Next region of interest comes in around 1.2830 (38.2% retracement) followed by the Fibonacci overlap around 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion), which largely lines up with the May-low (1.2729).