- A rebound in US Treasury yields supported a rally in the dollar.
- Data revealed stronger-than-expected US employment and wage growth in December.
- Canada’s economy added only 100 jobs in December.
The USD/CAD forecast points northward as investor sentiment tilts towards caution, with all eyes on a pivotal US inflation report scheduled later in the week. Moreover, traders adjusted their expectations for the number and size of Fed cuts this year. Consequently, there was a rebound in US Treasury yields, which gave more support to the dollar.
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The upcoming US inflation reading on Thursday could further influence views on Fed rate cuts. Current market pricing indicates a 64% chance that the Fed might initiate rate cuts as early as March, compared to nearly 90% a week ago, according to the CME FedWatch Tool.
Meanwhile, Friday’s data showed stronger-than-expected US employment and wage growth in December, signaling a resilient labor market. However, a separate survey on the same day revealed a significant slowdown in the US services sector last month. Notably, employment figures hit a nearly three and a half year low.
On Friday, the Canadian dollar showed little change against the US dollar after a mixed job report from the US and Canada.
Canada’s economy added only 100 jobs in December. Still, wages for permanent employees increased at the fastest pace in three years. As a result, money markets lean towards April for the first Bank of Canada rate cut. Furthermore, a Reuters poll suggests that if the Fed shifts to rate cuts before the Bank of Canada, the Canadian dollar will trade stronger than anticipated throughout the year.
USD/CAD key events today
It will be a quiet session for USD/CAD as neither the US nor Canada will release high-impact economic reports.
USD/CAD technical forecast: Bullish momentum falters near 1.3350
The USD/CAD bullish move has weakened near the 1.3350 key level. Notably, the price is not swinging too far from the 30-SMA, showing buyers are weak. At the same time, although the price is moving higher, the RSI is descending, indicating a bearish divergence.
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If buyers regain momentum, the price will likely bounce off the 30-SMA to retest the 1.3501 resistance level. On the other hand, if the divergence plays out, there will be a shift in sentiment as the price will break below 1.3350 and the 30-SMA. Consequently, the price might drop to the 1.3200 support level.
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Saqib Iqbal
