USD/CAD - Canadian Dollar Ignoring Oil Rally

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The Canadian dollar is under pressure ahead of employment data from the U.S. and Canada. USD/CAD rallied from $1.2050 yesterday to $1.2131 in early New York trading after two strong U.S. economic reports.

The ADP employment report showed the American economy added 978,000 jobs in May, easily beating the forecast for a 650,000 increase. Coincidently, the ADP forecast is identical to the non-farm payroll (NFP) prediction. Next, Weekly Jobless Claims fell to levels last seen in March 2020 and the two reports fueled U.S. dollar demand.

The U.S. dollar rallied Thursday and extended gains overnight. 10-year treasury yields climbed from 1.58% to 1.62%, global equity markets stumbled, and gold prices fell. However, oil traders shrugged off the rise in the greenback and bought crude. WTI climbed to $$69.23/barrel overnight in the belief that a robust U.S. economic recovery will help boost global growth and increase crude demand.

Canadian dollar traders ignored the rise in oil prices and focused on today’s Labour Force Survey (LFS). Analysts expect Canada to have lost 20,000 jobs in May, as a third-wave coronavirus outbreak led to new lockdowns and restrictions.

A weaker-than-expected Canadian report combined with a more robust than forecast NFP report will increase Canadian dollar selling pressures. However, Canadian dollar losses may be short-lived as the economic outlook for the summer and far is very positive. Pent-up consumer demand as coronavirus measures ease, combined with rising oil prices, and bearish long term technicals should attract Canadian dollar buyers.

EUR/USD dropped to $1.2106 after closing in New York at $1.2127. Traders pared bullish bets based on a Eurozone economic recovery after yesterday’s U.S. data raised risks the U.S. Federal Reserve would need to raise interest rates ahead of schedule. Weaker than expected Eurozone Retail Sales data for April didn’t help (actual -3.1% m/m vs 3.3 in March). A non-farm payrolls print above one million would accelerate the risk and drive EUR/USD to a test of support at $1.2000.

GBP/USD dropped from $1.4200 yesterday to $1.4085 in Asia, then bounced to 1.4120 in early New York trading. The rebound was encouraged by better-than-expected U.K. Construction Purchasing Managers Index (actual 64.2 in May, compared to 61.6 in April).

Canada Ivey PMI is on tap.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates