USD/CAD extends slide ahead of job reports

• Canada’s employment change expected to slow
• US nonfarm payrolls projected to fall to 179,000
• Canadian dollar rallies for third straight day

The Canadian dollar continues to rally today and has climbed 120 points since Tuesday. Earlier in the day, USD/CAD touched a low of 1.3490, its lowest level since April 21st.

Canadian employment change expected to ease

The markets will be treated to key employment numbers on both sides of the border later today. Canada is expected to have added 20,000 new jobs in April, following 34,700 in March. This would be the lowest reading in four months and would be a clear sign that the labour market is weakening as interest rate hikes make their effect felt on the economy.

In the US, nonfarm payrolls for April could move the dial on the US dollar ahead of the weekend. The markets are braced for a drop to 179,000, following 236,000 in March. There is a growing feeling that the labour market, which is been surprisingly resilient to relentless rate hikes, is showing cracks. Unemployment claims jumped to 242,000, up from a downwardly revised 229,000 and above the consensus of 240,000. Business optimism remains weak and that could translate into less hiring. If nonfarm payrolls fall to 180,000 or less, I would expect to see the US dollar lose ground, on expectations that the Fed may ease policy.

The Fed’s rate hike of 25 basis points this week may have been the end of the current rate-hike cycle, in which the Fed has raised rates 10 consecutive times. Fed Chair Powell hinted that the Fed could pause rates as soon as June, although he reminded his listeners that the battle against inflation was far from over and didn’t close the door on further hikes. The markets are betting on a pause in June, with a probability of 99%, according to the CME Group.

Powell said that given the inflation outlook, rate cuts were not on the table. The markets don’t buy it and have priced in a rate cut at around 50% in July and a whopping 88% in September, according to the CME Group.

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USD/CAD Technical

• USD/CAD tested support at 1.3492 earlier. Next, there is support at 1.3435
• 1.3580 and 1.3637 are the next resistance lines

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