Canadian dollar edges higher as Ivey PMI expansion continues

• Canada’s Ivey PMI expands for fourth month in a row
• Fed raises rates, markets expect a cut in September
• US nonfarm payrolls expected to fall below 200K

In the North American session, USD/CAD is trading at 1.3585, down 0.23% on the day.

Canada’s Ivey PMI expands for 4th straight month

Canada’s Ivey PMI, a key indicator of business activity, continued to show expansion, with readings above 50.0 for a fourth successive month. The PMI eased from 58.2 to 56.8 in April but beat the consensus of 54.8. The week wraps up with employment reports out of the US and Canada on Friday, which should mean a busy session for the Canadian dollar.

The Canadian economy is clearly cooling down, raising expectations that the labour market, which has been surprisingly resilient, will slow down. The unemployment rate is projected to stick around 5%, despite the BoC’s aggressive tightening. Employment change is expected to slow to 20,000 in April, down from 34,700 in March.

In the US, nonfarm payrolls, which was one of the most important releases before inflation grabbed the headlines, is projected to slow to 179,000 in April, down from 236,000 in March. Wage growth, an important driver of inflation, is expected to remain unchanged at 4.2% y/y and 0.3% m/m. The readings could have a significant impact on the Fed’s thinking (and influence market pricing for rates) ahead of the June meeting, which could translate into US dollar volatility after the release.

The Federal Reserve raised rates by another 25 basis points, and the key question on investors’ minds is was this the final hike in the current tightening cycle. Fed Chair Powell’s message was mixed, as he hinted that he may be done tightening, but may have given himself an out to raise rates in reiterating that inflation remained too high and that the process of getting inflation back down to 2% has a long way to go.”  Powell said that inflation was too high to consider rate cuts, but the markets aren’t buying it and have priced a rate cut at the September meeting at 80%, according to the CME Group.

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USD/CAD Technical

• 1.3492 and 1.3435 are providing support
• 1.3580 is under pressure in resistance. Above, there is resistance at 1.3711

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