- USD/CAD is experiencing selling pressure as the US dollar weakens following disappointing US Non-Farm Payroll (NFP) data.
- Growth in private sector jobs has slowed down considerably, whereas the public sector has shown unexpected strength.
- Increased tariffs by the US on Canada have dampened the outlook for the Canadian dollar.
The USD/CAD exchange rate dipped to almost 1.3570 during the European session on Friday, looking to revisit its eight-month low around 1.3540. The Loonie is under pressure as the market digests the recent US NFP report released on Thursday.
The US Dollar Index (DXY), which measures the dollar against six major currencies, has slipped below 97.00.
According to the NFP report, while public sector employment saw a significant boost, private sector job creation was notably slower. In June, a total of 147,000 jobs were added, surpassing the 110,000 forecast. Yet, private businesses only created 74,000 jobs, a decline from the 137,000 in May, which trails behind the three-month average of 115,000.
Investors are leaning towards supporting the Canadian dollar against the US dollar, but are cautious regarding other currencies due to uncertainties tied to the impending tariff deadline on July 9. The Canadian economy is yet to finalize a trade agreement with the US, raising the potential for higher tariffs next week.
USD/CAD continues to face selling pressure whenever it attempts to break above the 20-day exponential moving average (EMA), indicating a trend of ‘upward sales.’ The 14-day relative strength index (RSI) has dropped below 40.00, suggesting there is fresh bearish momentum brewing.
Looking ahead, the exchange rate might slide toward the September 25th low at key levels of 1.3500 and 1.3420. Conversely, a resurgence in the pair above 1.3820 could signal potential resistance at 1.3920 from May 21 and further movement toward 1.4000 from May 15.
USD/CAD Daily Chart
US Dollar FAQ
The US dollar (USD) is the official currency of the United States and is widely used in several other countries. As of 2022, it’s the most traded currency globally, making up more than 88% of forex transactions, averaging around $6.6 trillion daily. Post-World War II, it succeeded the British pound as the world’s reserve currency, and while it was historically backed by gold, this changed with the Bretton Woods Agreement in 1971.
The value of the US dollar is primarily influenced by monetary policy set by the Federal Reserve. The Fed aims for price stability (managing inflation) and maximum employment. Interest rate adjustments are its main tool; increasing rates can bolster the dollar during high inflation, while decreasing rates can weaken it if inflation is low or unemployment is high.
In extreme scenarios, the Federal Reserve might resort to printing more dollars and enacting quantitative easing (QE), which can increase liquidity in the financial system. This policy is usually a last resort. During the 2008 financial crisis, QE was used extensively, despite its potential to weaken the dollar.
Conversely, quantitative tightening (QT) is when the Fed halts bond purchases and does not reinvest from matured bonds, typically supporting the dollar.
