US, Canada release job numbers - will Canadian dollar's rally continue?

The Canadian dollar is on a three-day winning streak, gaining 1.2% during that time.  USD/CAD is trading quietly at 1.4316 in the European session, up 0.14% on the day.  We could see volatility from the pair later today, as both Canada and the US releases employment reports.

Canada's economy remains weak but the labor market has been surprisingly resilient. The economy added 76 thousand jobs in January and 90.9 thousand a month earlier.  Those rosy numbers are unlikely to be repeated for February, with a market estimate of just 20 thousand.  The unemployment rate has been creeping lower but is expected to edge up to 6.7% from 6.6%.

The escalation in trade tensions between Canada and the US is casting a dark cloud over the economic outlook.  The US has imposed tariffs on all goods imported from Canada but announced a 30-day delay on all automobiles covered by the North American free trade agreement (USMCA).  Canada has imposed retaliatory tariffs but can ill-afford a protracted trade war as 75% of Canadian exports head to the US.  A trade war would also boost inflation and complicate the Bank of Canada's plans to continue lowering interest rates.

All eyes will be on today's US nonfarm payrolls.  The US labor market has been cooling down but hasn't shown signs of accelerated deterioation, which would mean further rate cuts from the Federal Reserve.  The market estimate for February stands at 160 thousand, compared to 143 thousand in January.  Wage growth is expected to rise 0.3% m/m in February, down from 0.5% in January. Annualized wage growth is expected to remain unchanged at 4.1%.

The Federal Reserve is watching carefully, as recent federal spending cuts and tariffs could weigh on the labor market.  The Fed is widely expected to hold rates at the March 19 meeting and there is a good chance that we won't see any futher rate cuts this year.  The Fed's rate path will depend on inflation and the strength of the labor market.

• USD/CAD is testing resistance at 1.4303.  This is followed by resistance at 1.4468
• There is support at 1.4230 and 1.4165