The USD/CAD currency pair plunged to a sharp sell-off on Friday, reaching 1.3630 in the early New York session. This drop stems from a powerful Canadian employment report released by Statistics Canada.
Canadian Jobs Boom:
- Massive Job Gains: Statistics Canada reported a staggering 90.4K new jobs added in April, significantly exceeding the consensus estimate of 18K. This follows job losses of 2.2K in March, highlighting a dramatic turnaround in the Canadian labor market.
- Steady Unemployment Rate: The unemployment rate remained stable at 6.1%, defying expectations of a rise to 6.2%.
Wage Growth Slowdown:
- Wage Growth Cools: While employment surged, annual average hourly wage growth dipped to 4.8% from 5.0% in March. This indicates a potential softening in consumer spending and a more muted inflation outlook.
Limited Impact on BoC Policy:
- Offsetting Factors: Despite the slowdown in wage growth, the robust job additions are likely to have a muted impact on the Bank of Canada’s (BoC) interest rate outlook. The strong employment numbers may offset concerns about inflation.
Canadian Dollar Buoyed by Oil Prices:
- Oil Rally Lifts CAD: The Canadian Dollar’s appeal remains strong, fueled by a sharp recovery in oil prices. West Texas Intermediate (WTI) futures continue their upward trend, bolstered by speculation of a Federal Reserve policy shift towards normalization starting in September. Canada’s position as a leading oil exporter to the US benefits from higher oil prices.
US Dollar: Uncertain Trajectory:
- Cooling US Labor Market: A slowdown in the US labor market is keeping the US Dollar’s gains in check. The US Dollar Index, a measure of the Greenback’s strength against major currencies, is experiencing a slight rebound from its critical support level of 105.00.
- Fed Rate Cut Uncertainty: While market participants anticipate potential Fed rate cuts in September, policymakers themselves remain uncertain about the timing and extent of such cuts. Atlanta Fed President Raphael Bostic acknowledged that the central bank is considering rate cuts but remains unsure about the specifics of quantitative easing.
The robust Canadian employment data, coupled with a strong oil price rally, has significantly strengthened the Canadian Dollar, leading to a sharp depreciation of the USD/CAD pair. The uncertainty surrounding potential US rate cuts further weakens the US Dollar’s position.