CADUSD: Are you missing out on the Canadian dollar?

Traders are jumping on CADUSD, but what do they know you don’t? Canadian jobs data beat expectations in September, but the US dollar still outperformed the Canadian dollar. Understanding this push-and-pull relationship between the two North American currencies can often lead to incredible trading opportunities. Let’s look at what happened, and what you can expect from this epic battle.

In the biggest monthly rise since the beginning of 2018, the Canadian economy added 63,300 new jobs in October. Most of these gains came from part-time employment increasing by over 80,000 jobs. However, full-time employment actually fell by 16,900, which rather took the shine off the otherwise strong set of figures. 

The numbers might look impressive, but the increase in part-time over full-time workers does not reflect well on Canadian growth. Ask yourself this question: Does a rise in part-time hiring suggest the Canadian economy is weak?

Since the USD rose over the CAD, despite US job growth lower than expected, it would seem the answer is yes. However, one key aspect of the job report that is often overlooked is the unemployment rate. 

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The secret to the Canada job report

Canada US Jobs Reports sends CADUSD into turmoil.

In Canada, the unemployment rate fell to 5.9% from 6.0%. What is notable about this is that most of the new jobs, around 28,000, were created in the construction industry.

The impact of the report’s release on USDCAD was mixed initially, as the pair whipsawed in a volatile range between 1.2885 and 1.2950. Later, it settled down to continue its slow rise, ending the day in the 1.2940s. This would indicate the US dollar essentially dominated the Canadian dollar on the day the job report came out.

The triumph of the USD is a bit strange given that the Canadian jobs data was better than the US employment figures, which came out at the same time. Analysts had forecasted 185,000 new American jobs, but in the end the figure was only 134,000.

Yet, despite the US showing arguably poorer jobs data, the US dollar performed significantly better the Canadian. 

Did the US Federal Reserve rescue the USD?

The reason the US dollar outperformed was the US Federal Reserve (the Fed). The market expects the Fed to be more aggressive in raising interest rates than the Bank of Canada (BOC), and interest rates are the primary driver of currency pair appreciation.

Canada’s expected raising of rates may well cause a rollover

Currently, comparative rates stand at 2.25% in the US and 1.50% in Canada — thus the US dollar has the advantage, a fact that traders had already picked up on. While economists expect the BOC to raise interest rates to a lower peak of 2.5%, the chairman of the Fed, Jerome Powell, recently said that the Fed would probably raise interest rates beyond the so-called ‘neutral rate’ of 3.0%. Powell’s comments, and the Fed’s policies, have increased market favour for the dollar.

CADUSD: The bell hasn’t rung yet

Don’t count the CAD out just yet though. Canada is a major exporter of oil, so any rise in crude oil prices could yet see it rally.

Rising oil prices will trigger a stronger Canadian dollar.

If oil prices rise much further, we may see USDCAD move lower with the medium-term trend down. Traders everywhere are watching oil prices, with CADUSD highlighted on their watchlist.

There’s more. The BOC is now widely expected to raise interest rates at its 24 October meeting, which should further support for CAD.

If you want to benefit from a rise in the Canadian dollar over the USdollar, just log into your Exness account, select CADUSD from the market watch, and place your order.

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