The USD/CAD pair continued its upward trajectory on Monday, rising for the fifth straight day and trading around 1.4440 during European hours. The US Dollar (USD) saw significant gains, bolstered by strong US labor market data for December, which is expected to support the Federal Reserve’s decision to keep interest rates steady in January.
The US Dollar Index (DXY), which tracks the greenback against six major currencies, reached 109.98 during Asian trading hours on Monday, marking the highest level since November 2022. This rally was further supported by higher yields on US Treasury bonds, with the 2-year and 10-year yields standing at 4.41% and 4.79%, respectively.
Friday’s US Bureau of Labor Statistics (BLS) report revealed a significant 256K increase in Nonfarm Payrolls (NFP) for December, far surpassing the market’s forecast of 160K. The data also showed the US Unemployment Rate dropping to 4.1% from 4.2% in November. However, annual wage inflation, reflected in Average Hourly Earnings, slightly decreased to 3.9% from the previous 4%.
On the other hand, the Canadian Dollar (CAD) faces pressure due to ongoing uncertainty surrounding US trade policy, particularly with President-elect Donald Trump’s threat to impose tariffs on Canadian imports. Stephen Brown, Deputy Chief North America Economist at Capital Economics, noted that such tariffs could weigh heavily on the loonie this year. Despite this, Canadian Prime Minister Justin Trudeau assured that Canada would not seek a trade war but would respond if tariffs are imposed on Canadian goods.
The CAD’s losses are somewhat mitigated by rising oil prices, a key support factor for the commodity-linked currency. As Canada remains the largest oil exporter to the US, the recent surge in West Texas Intermediate (WTI) crude oil prices offers some relief. On Monday, WTI extended its rally, reaching nearly $77.00 per barrel, its highest level since October 8, driven by concerns over potential supply disruptions due to new US sanctions on Russia’s oil industry.
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