Home USD/CAD Outlook: Dollar Pauses Ahead of NFP

USD/CAD Outlook: Dollar Pauses Ahead of NFP

  • Investors await the release of US nonfarm payroll data.
  • Canadian employment data will come out on Friday.
  • In August, Canada achieved a trade surplus of C$718 million.

Friday’s USD/CAD outlook is bearish as the Canadian dollar held strong while the US dollar weakened ahead of the nonfarm payrolls. Investors are keen to see if the data will lead to adjustments in the Federal Reserve’s hawkish stance on interest rates.

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On Thursday, the Canadian dollar gained strength against the US dollar, recovering from a six-month low earlier in the day. This improvement was driven by two consecutive days of stability in bond yields. Moreover, data showed Canada’s trade balance shifted to a surplus in August. Still, the currency has weakened recently amid dollar strength.

Rahim Madhavji, the president at Knightsbridge Foreign Exchange, attributed the recent underperformance of the Canadian dollar to a big drop in oil prices and the overall strength of the US dollar.

Meanwhile, Canadian employment data will come out on Friday. Notably, Thursday’s data revealed that Canada achieved a trade surplus of C$718 million ($521.88 million) in August. This surplus came due to robust export growth following a month of labor strikes that had disrupted West Coast ports.

At the same time, analysts maintain optimistic forecasts for the Canadian dollar in the coming year. They consider it undervalued and likely to benefit from Canada’s strong economic ties with the United States.

Meanwhile, the price of oil, a key Canadian export, continued to decline, following a sharp drop in the previous session. US crude oil futures settled at $82.31 per barrel, marking a 2.3% decrease.

USD/CAD key events today

The major event today will be the release of employment data from the US, including the following components:

  • Average hourly earnings.
  • Nonfarm payrolls.
  • Unemployment rate.

USD/CAD technical outlook: Bears retest the 1.3701 support.

USD/CAD technical outlook
USD/CAD 4-hour chart

On the technical side, USD/CAD has had a deep pullback that has retested the 1.3701 support level. Nevertheless, the bullish bias is still in place as the price sits above the 30-SMA, and the RSI is in bullish territory above 50. Notably, the pullback came after the RSI made a slight bearish divergence, indicating bullish weakness. 

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The 1.3701 support level allows bulls to return stronger and retest the 1.3801 resistance level. However, the price will soon break below 1.3701 and the 30-SMA if their weakness persists.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.