USD/CAD holds steady above 1.3850 as Fed cuts its rates, eyes on Canadian employment report

• USD/CAD trades flat around 1.3860 in Friday’s early Asian session. 
• The Fed decided to cut the interest rate by a quarter percentage point on Thursday. 
• The Canadian employment report will be closely watched. 

The USD/CAD pair flat lines near 1.3860 during the early Asian session on Friday. The Greenback faces some selling pressure after the US Federal Reserve's interest rate decision. Later on Friday, the advanced Michigan Consumer Sentiment and the Fed’s Bowman speech will be in the spotlight, along with the Canadian employment report. 

As widely expected, the Federal Open Market Committee (FOMC) lowered its benchmark overnight borrowing rate by 25 basis points (bps) to a target range of 4.50%-4.75% at its November meeting on Thursday. Fed Chair Jerome Powell said the central bank is pursuing interest rate cuts as monetary policy still remains tight, adding that the Fed will continue assessing data to determine the "pace and destination" of interest rates as inflation has slowed nearing the Fed’s 2% target.

The US Dollar (USD) edges lower after the Fed’s Powell failed to offer any strong clues about the path of the rate cut in the near term. According to the CME Group's Fed Watch Tool, traders are pricing a 75% chance the Fed will cut rates again in December, up from 69% before the Fed rate decision. 

Data released by the US Department of Labor (DoL) on Thursday showed that the Initial Jobless Claims climbed to 221K in the week ending October 25. This figure matched initial estimates and was higher than the previous reading of 218K (revised from 216K).

The Canadian employment report is due later on Friday. The unemployment rate is expected to tick higher to 6.6% in October from 6.5% in September. Any signs of a weakening labor market in Canada could support the Bank of Canada (BoC) making another super-sized interest rate cut and weighing on the Loonie. 

“A further loosening in the labor market, primarily through a higher unemployment rate, would increase the odds of a 50-basis-point [cut] for a second straight [Bank of Canada] meeting in December,” noted Benjamin Reitzes, managing director and Canadian rates and macro strategist at BMO Capital Markets.