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Canadian Dollar catches a firm lift on labor data beats, bounces back on Friday

October 6, 2023| Forex Market


  • Canadian Dollar market flows turn bullish following US & Canada labor data prints.
  • Canada Unemployment Rate flat at 5.5%, US unemployment holds at 3.8%.
  • US NFP handily beats expectations with slightly softer earnings.

The Canadian Dollar (CAD) is climbing to fresh highs, set to challenge Monday’s trading range following a bumper labor data release, with a firm US Nonfarm Payrolls (NFP) reading for the US Dollar (USD) mixing with misses on hourly wages and unemployment.

Canada labor markets continue to improve, with the Canadian economy adding more jobs than expected, but a bumper NFP reading is seeing mixed results for the USD on lethargic US unemployment rate and wages figures.

Daily Digest Market Movers: Canadian Dollar staggers on labor data, US NFP

  • US NFP broadly beat expectations, printing 336K against the expected 170K, and handily vaulting over the previous 227K (revised upwards from 187K).
  • US data came in mixed despite the broad NFP beat, with hourly wages holding steady at 0.2% for September against the expected uptick to 0.3%.
  • US Unemployment Rate also failed to meet expectations, flat at 3.8% versus the forecast 3.7%.
  • Canadian Unemployment Rate held at 5.5% against the forecast 5.6%.
  • Canadian jobs change shows a bumper 63.8K change in net employment against the forecast 20K and clearing the previous 39.9K.
  • The data-beat for the Loonie was a clean beat for the CAD against the US Dollar, and the USD/CAD pair is dropping back after spending most of the week on the high end.
  • US 10-year Treasury yields shot back up to 4.88% for the day, but the Loonie is holding surprisingly resilient.
  • Little meaningful data remains until Wednesday’s US Producer Price Index (PPI) figures.

Technical Analysis: Canadian Dollar catches a rise on labor data beats, sending USD/CAD back to 1.3660

The USD/CAD clipped into an intraday high of 1.3746 before getting forced back down the charts into 1.3660, losing contact with the 50-hour Simple Moving Average (SMA) near 1.3720 and making a run for support at the 200-hour SMA near 1.3620.

Despite Friday’s reprieve, the USD/CAD remains firmly bullish on the charts, trading well above the 200-day SMA near 1.3450 and the 50-day SMA confirming a bullish cross of the longer moving average.

The Relative Strength Index (RSI) has pulled back from overbought conditions on the daily chart, and USD/CAD short interest will want a bearish confirmation before following the indicator lower.

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

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