USD/CAD extends downside to 1.3800 after US/Canada economic data

• USD/CAD slides to near 1.3800 after weak US ADP Employment and better-than-expected Canada monthly GDP for May.
• Weak US ADP Employment suggests that some cracks have appeared in the resilient US labor market.
• Investors await the Fed policy announcement.

The USD/CAD pair declines to near the round-level support of 1.3800 in Wednesday’s New York session. The Loonie asset faces a sharp sell-off after the release of the weak United States (US) ADP Employment Change data for July and better-than-expected Canada’s monthly Gross Domestic Product (GDP) data for May.

The ADP Employment report showed that fresh payrolls in the private sector were lower at 122K than estimates of 150K and the former release of 155K, upwardly revised from 150K. This has points to slowdown in the labor demand, which appears to be consequences of interest rates remaining restrictive for a longer period by the Federal Reserve (Fed). Soft Employment data would solidify market expectations of Fed’s early rate cuts.

Weak Employment data has weighed heavily on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles below the crucial support of 104.00.

Meanwhile, more volatility is anticipated in the US Dollar as investors await the outcome of the Fed’s monetary policy. The Fed is expected to leave interest rates unchanged in the range of 5.25%-5.50%, with a dovish guidance.

In the neighboring nation, the economy expanded at a better-than-expected pace of 0.2% from the estimates of 0.1% but was lower than the prior release of 0.3%. The overall data suggests that the economy is going through a rough phase. However, back-to-back rate cuts by the Bank of Canada (BoC) would uplift economic prospects.