The Canadian Dollar (CAD) rallied significantly on Friday following a robust addition of jobs to the Canadian economy, surpassing analysts’ expectations by a considerable margin. However, amidst prevailing risk-off sentiments, the CAD’s gains were tempered as investors sought refuge in the US Dollar (USD) amid concerns over hawkish Federal Reserve (Fed) rhetoric and pessimistic US consumer sentiment data.
Canada experienced a remarkable surge in net job gains in April, marking its highest increase since February 2023, with nearly 100,000 jobs added to the economy, while the unemployment rate held steady at 6.1%. Conversely, in the United States, both consumers and Fed policymakers expressed concerns over prolonged and elevated inflation, dashing hopes of imminent rate cuts and prompting investors to gravitate towards the safe-haven USD.
Despite the positive employment figures in Canada, market sentiment remained cautious, restraining the CAD’s upward momentum.
Key market movements on Friday:
Canada added 90,400 net jobs in April, surpassing the forecast by fivefold and offsetting the previous month’s decline of 2,200 jobs.
The Canadian Unemployment Rate remained unchanged at 6.1%, defying expectations of a slight increase to 6.2%.
The University of Michigan’s US Consumer Sentiment Index for May plummeted to 67.4, its lowest level in six months.
US consumers anticipate a persistent acceleration in prices, with the UoM 5-year Consumer Inflation Expectations rising to 3.1%.
Lingering concerns over souring consumer sentiment and enduring inflationary pressures dampened hopes of rate cuts, fueling demand for the USD as a safe haven.
Fed officials’ rhetoric provided little reassurance to markets, as they downplayed the likelihood of rate cuts in 2024.
Technical analysis:
The CAD demonstrated broad-based strength on Friday, appreciating against major currency counterparts.
USD/CAD briefly tested below 1.3620 before rebounding above 1.3660, with technical support observed around the 50-day Exponential Moving Average (EMA) at 1.3637.
However, upside momentum for USD/CAD remains constrained, with the pair consolidating following a retreat from its recent peak near 1.3850.
