Canadian Dollar tumbles with USD skyrocketing on upbeat employment data

• Canadian Dollar drops for second consecutive day amid higher US Dollar.
• Strong US employment data boosts US Treasury yields, US Dollar.
• In Canada, strong Ivey PMI data eases downside pressure on Canadian Dollar after disappointing labour figures.

The Canadian Dollar (CAD) extends its losses on Friday following Thursday’s pullback to test fresh year-to-date lows. A combination of a stellar US employment report and weak Canadian labor figures have undermined investors’ confidence in an already weak Loonie.

Data released by the US Labor Department on Friday shows the US economy created employment well above expectations in March. Beyond that, wages continued growing at a steady pace, well above levels consistent with the Federal Reserve’s (Fed) 2% inflation target.

These figures pour cold water on market hopes of interest rate cuts in June and endorse the hawkish party of the central bank, which advocates for delaying and downsizing the easing cycle. This has sent US yields higher, dragging the US Dollar up with them.

In Canada, net employment levels have declined against expectations in March. The negative impact, however, has been offset by the strong improvement of March’s Ivey PMI, which has given some support to an ailing Canadian Dollar.

Daily digest market movers: USD/CAD dips further as US NFP beat expectations

• The Canadian Dollar has lost more than 0.5% over the last two days, retracing last week’s gains and reaching its lowest price since December 2023.
   
• US Nonfarm Payrolls increased by 303K in March from 270K in February, well above the 200K forecasted by market experts.
   
• Average Hourly Earnings have increased at a 0.3% monthly pace and 4.1% year on year from 0.2% and 4.3% respectively in February.
   
• Canadian Ivey Purchasing Managers’ Index has improved to 57.7, its best reading over the last 12 months, from 53.9 in February.
   
• Somewhat earlier, Canadian employment data disappointed investors with a 2.2K decline in March after a 40.7K increase in February. The market was expecting a 25K increase.
   
• On Thursday, Fed Powell reiterated that the central bank needs more time to decide on rate cuts, while Fed Kashkhari warned that there might not be any rate cut this year, which sent the USD higher.

The overall picture shows the US Dollar trading back and forth within an ascending channel with price action capped below trendline resistance at 1.3640. Above here, the next targets are 2.3710 and 1.3770. The channel’s measured target is 1.3845. Support levels are 1.3560 and 1.3485.

USD/CAD 4-Hour Chart