Usdcad Retreats Lower After Weak Us Data

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Usdcad Retreats Lower After Weak Us Data

USD/CAD Retreats Lower After Weak US Data

The USD/CAD pair's bullish momentum ended as it finally moved lower from its 7-month high. Now, the US Dollar/Canadian Dollar pair is trading near the 1.3730 level with the possibility of even more downside.

The downbeat momentum in the USD/CAD is mainly driven by the recent employment data coming out of the USA. The ADP didn't paint a healthy picture of the US labor market & thus allowed the CAD & other currencies to gain the upper hand against the greenback.

During the month of September, the PMI index by ISM declined, and then we had the ADP, which also showed poor results. By combining both of these economic indicators, it becomes clear that the effects of interest rates have started to show up in the US economy.

More Rate Hikes From BoC & Fed

For now, the only thing that's still ambiguous about the Federal Reserve is whether we get a rate hike or the policy will shift towards rate cuts. Any decision from the Fed regarding its policy measure will be essential for determining the next direction of the USD/CAD.

The markets believe that high-interest rates will remain in effect for a long time, which is the real reason behind the 4.88% yield on US bonds. A look at historic yields tells us that these levels were seen during 2007 (almost 16 years).

Now, traders will be looking closely at the NFP and the jobless claims on the US side. Similarly, the Canadian side also showed a decline in the manufacturing PMI. Earlier, the PMI was around 48.0, which has since moved lower in September to around 47.5.

According to the Deputy Governor of BoC, Canadian businesses are facing multiple headwinds, such as price changes, high production costs, and high inflation. All of these things are hurting the Canadian consumer's demand.

The comments by the BoC deputy governor were positive for the Canadian bond yields and thus also provided much-needed support to the Canadian Dollar. For now, the BoC is expected to introduce one more rate hike before the end of 2023.

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