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Currency dance: USD/CAD swings amidst strong U.S. jobs data

On Friday, the Canadian dollar faced a notable weakening, marking a one-week low against its U.S. counterpart. This decline was spurred by the release of stronger-than-expected U.S. jobs data, a pivotal factor that diminished the prospects of the Federal Reserve implementing interest rate cuts in the upcoming months.

The loonie exhibited a 0.6% decrease, trading at 1.3460 against the greenback, or 74.29 U.S. cents. Its lowest point since the previous Friday was recorded at 1.3475, contributing to a weekly decrease of 0.1%.

Simon Harvey, who serves as the head of FX analysis for Monex Europe and Monex Canada, provided insights into the market dynamics, stating, "January's jobs report out of the U.S. has effectively killed the prospect of the Fed easing in March and has even cast doubt over a May cut, providing a boost to Treasury yields and the (U.S.) dollar as a result."

This sentiment echoed the broader impact on the U.S. dollar, which exhibited strength against a basket of major currencies, extending its gains from the beginning of the year. Harvey explained that the robust U.S. data prompted concerns about the Canadian dollar's long positioning, leaving the loonie susceptible to a correction lower, even as equities traded positively and earlier data showcased Canada's economy outperforming expectations in the fourth quarter.

Despite positive indicators in Canada's economic performance, as suggested by preliminary domestic data on Wednesday projecting a 1.2% annualized expansion in the fourth quarter, the Canadian dollar found itself entangled in the global market dynamics influenced by the U.S. jobs report.

The U.S. stock index benchmark, the S&P 500, reached a fresh record high during this period. However, the price of oil, a significant export for Canada, experienced a 2% decline, settling at $72.35 a barrel.

In response to these market shifts, Canadian government bond yields increased across the curve, closely tracking movements in U.S. Treasuries. The 10-year bond yield rose by 11.7 basis points to 3.388%, rebounding from its lowest intraday level in over two weeks at 3.230% recorded on Thursday.

This intricate interplay of global financial markets highlighted how developments in the U.S. economy could have far-reaching effects, influencing currencies, commodities, and bond markets worldwide.

usdcad analysis, forex trading
USC/CAD, daily chart, MetaTrader, 04.02.2024



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