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Canadian dollar eyes job data

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Will Canadian job data boost loonie?

It’s been a busy week for the Canadian dollar. USD/CAD started the week with strong gains, but the Canadian dollar has clawed back and recovered most of those losses.

The week will wrap up with the Canadian employment report for February. The markets are expecting a huge turnaround after a dismal January, when the economy shed 200.1 thousand jobs. The consensus estimate for February stands at 160 thousand new jobs. The unemployment rate is expected to fall from 6.5% to 6.2%.

In the turbulent economic landscape we are witnessing, there are opposing pressures on the Canadian dollar. Risk appetite has been weak lately, as the war in the Ukraine intensifies and hopes for a diplomatic solution have been dashed, as the sides haven’t even been able to reach a cease-fire truce. This has weighed on the Canadian dollar, which is risk-sensitive. At the same time, the Canadian dollar is commodity-based, and the surge in prices of oil and other commodities has helped the Canadian dollar to weather the increase in risk aversion.

In the US, headline CPI continued to accelerate, with a gain of 7.9% for February YoY. This matched the forecast and was up from 7.5% beforehand. With inflation running at 40-year high, there’s little doubt that the Fed will raise rates at next week’s meeting, most likely by 25 basis points.

The surge in oil prices has central banks on the alert for stagflation, and this could mean that expected tightening will have to be eased. This is also the case of the Bank of Canada, which raised rates from 0.25% to 0.50% last week, but may have to slow its pace of rate hikes.

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USD/CAD Technical

  • USD/CAD faces resistance at 1.2835 and 1.2934
  • There is support at 1.2612 and 1.2488

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