The USD/CAD pair has made a swift recovery to near the key support level of 1.3500 in the American session on Friday. This uptrend comes after the release of the latest US Nonfarm Payrolls (NFP) data for August, which showed weaker-than-expected labor demand.
The NFP report revealed that only 142K workers were hired, falling short of the estimated 16K but still an improvement from the previous 89K (which was revised down from 114K). The Unemployment Rate dropped to 4.2%, in line with expectations and down from the previous 4.3%.
On the other hand, Average Hourly Earnings saw a faster-than-expected increase, with annual wage growth reaching 3.8% compared to the estimated 3.7% and the previous 3.6%. While this may raise concerns about inflation, it is unlikely to sway the Fed’s interest rate decisions as job preservation remains a top priority.
The US Dollar Index (DXY) bounced back from its earlier losses and climbed towards 101.20, reflecting renewed strength against major currencies.
Meanwhile, in Canada, the labor market added 22.1K new jobs, slightly below the expected 25K. The previous month saw a decline of 1.4K jobs, leading to a rise in the Unemployment Rate to 6.6% from the previous 6.4%.
However, Average Hourly Earnings dropped to 4.9% from 5.2%, indicating a slowdown in wage growth. This combination of rising unemployment and lower wage growth could signal further interest rate cuts by the Bank of Canada (BoC).
Analysis:
The recent movement in the USD/CAD pair and the US Dollar Index reflects the market’s reaction to the latest NFP data and its implications for both the US and Canadian economies. The weaker-than-expected job growth in the US has raised expectations of Fed interest rate cuts, while Canada’s labor market is showing signs of slowing down. This could lead to diverging monetary policies between the two countries, impacting currency exchange rates and potentially influencing investment decisions.