The Canadian Dollar (CAD) experienced its eighth consecutive decline against the US Dollar (USD), as market sentiment shifted away from the Loonie in favor of the Greenback. Although US Producer Price Index (PPI) inflation eased more than anticipated in September, markets noted that core PPI inflation increased for the annualized period, contributing to the CAD’s struggles.
Despite Canada’s labor market showing stronger-than-expected performance, the data did little to support the CAD. The country added 46,700 net new jobs in September—nearly double the median forecast of 27,000—while the unemployment rate ticked down to 6.5% from 6.6%, defying expectations of an increase to 6.7%. However, with the Bank of Canada (BoC) widely anticipated to implement a 50 basis points rate cut at its next policy meeting later this month, there is little incentive for markets to bid up the Loonie. As a result, the CAD is on track for its worst weekly performance against the USD since March 2023.
Daily Digest: Key Market Movers
Canadian Job Growth: Canada added 46.7K net new jobs in September, significantly surpassing the median market forecast of 27K, following August’s addition of 22.1K jobs.
Unemployment Rate: The unemployment rate in Canada fell to 6.5%, contrary to expectations of an increase to 6.7%.
BoC Rate Expectations: Despite positive labor data, the BoC is still projected to cut rates by another 50 basis points on October 23.
US PPI Inflation: The US PPI remained flat in September at 0.0% month-on-month, lower than the expected 0.1% increase and August’s 0.2% rise.
Annual PPI Figures: September’s year-on-year PPI printed at 1.8%, exceeding the expected 1.6% but still lower than August’s revised figure of 1.9%. Core PPI, which excludes food and energy prices, rose to 2.8% year-on-year, surpassing the anticipated 2.7%.
Canadian Dollar Price Forecast
The USD/CAD currency pair maintained its upward momentum, closing at 1.3762, marking a daily gain of 0.15%. Over the past week, the pair has sharply recovered from September’s lows near 1.3400. The price action now sits well above the 50-day exponential moving average (EMA) at 1.3605 and the 200-day EMA at 1.3612, indicating a potential shift towards a more bullish outlook. The pair’s breakout above these key moving averages earlier this month confirms the end of the downtrend that characterized August and September.
Momentum indicators reinforce this bullish reversal. The Moving Average Convergence Divergence (MACD) has turned positive, with the MACD line crossing above the signal line. The increasing histogram indicates growing bullish momentum. With MACD readings now in positive territory, further gains appear likely, with the next key resistance level around 1.3800—a psychological and technical barrier that traders are likely to monitor closely.
However, the recent rally may have left the pair overextended in the short term, as reflected by the rapid gains over the past few sessions. A pullback to test the 50-day EMA or the 1.3650 level could be possible before attempting to push higher. Overall, the trend seems to favor the USD, but traders should remain vigilant for upcoming economic data and any signs of exhaustion in bullish momentum to navigate potential volatility effectively.
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