The USD/CAD outlook leans bearish as the pair lingers near recent lows following an unexpected surge in Canada’s employment numbers on Friday. Meanwhile, all eyes are on this week’s US inflation data for clues on the Fed’s policy outlook.
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The Canadian dollar rallied on Friday after data revealed that Canada added 90,400 jobs. This was about five times what economists had expected. Meanwhile, the unemployment rate held steady at 6.1%. The report surprised investors, who were convinced that Canada’s economy was deteriorating due to high interest rates.
Consequently, there was a sharp decline in rate-cut expectations. Before the report, investors were pricing in a 60% chance that the Bank of Canada would cut rates in June. However, this figure fell to 44% after the report. The rally in the Canadian dollar pushed the USD/CAD pair lower, but not for long.
The US dollar strengthened on Friday as data revealed higher expectations for inflation in the year ahead. In May, consumers raised expectations for inflation from 3.2% to 3.5%. This can become a big challenge for the Fed as expectations for inflation can actually drive inflation higher. Still, rate cut bets have risen since the poor US jobs report with investors now expecting two rate cuts this year totalling 50 basis points.
Market participants are now awaiting the US PPI and CPI reports. These will further shape expectations for the timing of the Fed’s next policy move.
The pair will likely consolidate ahead of US inflation figures as no major reports are coming from Canada or the US.
On the technical side, USD/CAD has fallen to retest the 1.3650 key support level after respecting a solid resistance trendline. The bias is bearish because the price trades below the 30-SMA with the RSI in bearish territory below 50.
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However, the bearish move has paused at 1.3650, which has repeatedly reversed the price. If the support holds firm again, the price will rise to retest its resistance trendline. However, if bears are strong enough to breach the support this time, the price will fall to retest the 1.3551 level.
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