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The Canadian job market surprisingly lost 5500 jobs in August. Expectations were much higher – for a gain of 24.2K. The unemployment rate ticked up from 7.2% to 7.3% as expected. USD/CAD is now moving higher, with parity getting closer.

This follows the disappointment seen last month, when Canada gained only 7.1K jobs. The months beforehand were much better, with nice gains.

The US weakness is definitely hitting its northern neighbor. Canada is very dependent on demand from the US, which also disappointed in the recent Non-Farm Payrolls report. This dependence is stronger than the dependence on oil prices.

Canada has a benchmark interest rate of 1%. The chances of a rate cut in 2011 already rose after the recent pessimistic statement in the rate decision. They are now even more elevated.

USD/CAD is currently at 0.9950. The next line of resistance is at 0.9973, just under the very round number of 1 – parity. Above parity we have 1.0060. Minor support is at 0.9913, followed by 0.9850. For more on USD/CAD, see the  Canadian dollar forecast.

Another factor pushing the pair higher is the general dollar strength across the board. The European troubles have their share in this. Trichet’s pessimistic press conference and the troubles in Greece already pushed EUR/USD to a 6 month low.