- The USD/CAD outlook indicates a sudden shift in sentiment.
- The US economy added only 73,000 jobs in July.
- Trump imposed a 35% tariff on Canada after the two countries failed to reach a trade deal.
The USD/CAD outlook indicates a sudden shift in sentiment after the US released a poor monthly employment report. Nevertheless, fundamentals still point to further weakness for the loonie after Trump imposed a 35% tariff on Canada.
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The US economy added only 73,000 jobs in July. This is almost half of the previous reading. Meanwhile, economists had expected the economy to add 106,000 jobs. At the same time, the unemployment rate increased from 4.1% to 4.2% as expected.
The report could increase pressure on the Fed to lower borrowing costs. Therefore, rate cut bets for September will likely go up. During the policy meeting, Powell had stressed on unemployment, which could cause the central bank to assume a more dovish tone.
“Fed Chair Jay Powell has placed greater emphasis on the unemployment rate, which is expected to rise marginally from 4.1% to 4.2%,” said ING FX strategist Francesco Pesole.
The jobs miss led to a sharp decline in the dollar, which allowed the Canadian dollar to breathe. On Friday, Trump imposed a 35% tariff on Canada after the two countries failed to reach a trade deal. The levy will hurt Canada’s economy by reducing demand for its goods. This will likely pressure the Bank of Canada to resume rate cuts.
USD/CAD key events today
USD/CAD technical outlook: Bearish momentum triggers retreat
On the technical side, the USD/CAD price has pulled back sharply after making new highs above the 1.3850 key level. However, it remains above the 30-SMA, a sign that the bullish bias remains intact. At the same time, the RSI is still above 50, suggesting strong bullish momentum.
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However, bears have shown sudden strength by making such a large candle. If it closes with a large body, it might form an engulfing candle that would signal a likely reversal. Such an outcome would allow bears to push the price below the 30-SMA.
On the other hand, if it closes with a large wick at the bottom, the uptrend might continue after a brief pullback. If USD/CAD continues higher, the next target will be at the 1.3900 key psychological level.
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