USD/CAD eyes Canada, US job reports

US nonfarm payrolls expected to slow to 250K

It’s a busy day in both Canada and the US, with both countries releasing July employment reports. It wasn’t so long ago that US nonfarm payrolls was eagerly anticipated and was the most important event of the week. The NFP often had a significant impact on the movement of the US dollar. That has changed in the new economic landscape of red-hot inflation and central banks raising interest rates practically every month. The NFP has been overshadowed as the media breathlessly reports new inflation records and the threat of a recession. Still, the NFP remains an important indicator and a surprise reading can still shake up the markets.

The July NFP is expected at 250 thousand, following a surprisingly strong June release of 372 thousand. A weak reading will raise concerns about a recession, which would likely see US yields and the US dollar fall. Conversely, a stronger than expected number would probably boost yields and the US dollar, as a stronger labour market would allow the Fed to remain hawkish regarding rate policy.

The markets have priced in an inflation peak and the Fed winding up its rate-tightening cycle, which has sent the US dollar on a hasty retreat. Fed policy makers have been pushing back, sending out the message this week that there are more large hikes on the way as inflation is not yet under control. A strong NFP reading would reinforce the Fed’s message and provide some support for the US dollar.

Canada will also publish employment data later today. The economy is expected to have created 20.0 thousand jobs in July, after a decline of 43.2 thousand in May. A stronger-than-expected reading should boost the Canadian dollar, while an underperformance could result in the currency losing ground. As well, Canada releases Ivey PMI. The indicator slumped to 62.2 in June, down from 72.0, and is expected to slow to 60.3. A surprise reading could have an impact on the direction of USD/CAD in the North American session.

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USD/CAD Technical

• USD/CAD is putting pressure on 1.2899. Above, there is resistance at 1.3002
• USD/CAD has support at 1.2741 and 1.2686

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