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USD/CAD Climbs to 1.3900 Amid Diverging U.S.-Canada Economic Signals and Oil Pressure
Traders' Opinions
Summary:
USD/CAD hovers near 1.3900 on Friday, supported by resilient U.S. labor data and weak Canadian fundamentals, with technical indicators pointing to further near-term gains.
Buy
TradingUSDCAD
EXP
1.38900
Entry Price
1.40000
TP
1.37800
SL
1.38743 -0.00354 -0.25%
0
Point
Flat
1.37800
SL
CLOSING
1.38900
Entry Price
1.40000
TP
USD/CAD traded around the 1.3900 mark on Friday at the time of writing, posting a modest 0.25% gain on the day, as a combination of U.S. macroeconomic resilience and Canadian fundamental headwinds underpinned the Greenback against its northern counterpart. The pair’s strength comes amid a backdrop of mixed labor market data from the United States and ongoing weakness in global Oil markets, which continue to weigh on Canada’s terms of trade.
The U.S. Dollar found support following the release of December’s labor market data, which presented a nuanced picture of economic momentum. Nonfarm Payrolls (NFP) rose by fewer than expected, suggesting a gradual cooling in employment growth. However, the Unemployment Rate declined and wage growth accelerated, indicating that the labor market retains a degree of underlying strength. Analysts interpret this as a signal that the Federal Reserve is likely to maintain a cautious approach at its upcoming January policy meeting. Market expectations largely center on a pause in interest rate adjustments, with futures pricing leaving open the possibility of a gradual easing path later in the year, should inflation dynamics stabilize.
“The U.S. labor market continues to demonstrate resilience despite slowing hiring trends. Wage growth and falling unemployment support the Dollar, even in the face of softer payroll gains,” noted a senior FX strategist at a New York-based investment bank. “This divergence in labor market conditions compared to Canada is giving USD/CAD a clear near-term bias to the upside.”
Conversely, the Canadian Dollar remains pressured by persistent softness in Oil prices, a critical driver of Canada’s external balance and fiscal revenues. Recent reports indicate that increased Venezuelan Oil exports to the United States could heighten competition for North American heavy crude, which is a key component of Canada’s export mix. Such developments risk constraining Canada’s energy revenues and limiting the Loonie’s appeal relative to the U.S. Dollar.
Domestically, Canada’s labor market also reflects an uneven recovery. RBC Economics noted that modest job gains paired with a higher Unemployment Rate signal a gradual yet choppy improvement in economic conditions. These findings align with the Bank of Canada’s (BoC) wait-and-see stance on interest rates, offering little immediate support for the Canadian Dollar. Analysts suggest that unless Oil prices stabilize or domestic economic momentum improves, the Loonie may remain on the defensive against a relatively stronger U.S. Dollar.
Technical Analysis
From a technical perspective, USD/CAD has breached a key resistance level at 1.3865, supported by a dynamic upward trend above the 50-day exponential moving average (EMA50). Short-term momentum remains bullish, with the pair trading along a supportive trend line while relative strength indicators show that previous overbought conditions have eased, entering exaggerated oversold territory relative to the price action. This technical configuration suggests a potential near-term rebound, reinforcing the likelihood of continued gains for the pair in the coming sessions.
TRADE RECOMMENDATION
BUY USDCAD
ENTRY PRICE: 1.3890
STOP LOSS: 1.3780
TAKE PROFIT: 1.4000
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