The USD/CAD pair is trading weakly around 1.4380 during early European hours on Tuesday, as the Canadian Dollar (CAD) gains strength against the US Dollar (USD). The surge in crude oil prices and stronger-than-expected Canadian employment data for December are providing significant support to the CAD. Market participants will look to the US December Producer Price Index (PPI) report, set for release later today, for further direction.
Following Friday’s employment report, traders have slightly reduced expectations that the Bank of Canada (BoC) will continue its rate-cutting cycle in its upcoming January meeting. December’s labor market data showed stronger-than-anticipated job growth, leading to a decline in the probability of a BoC interest rate cut from 70% to 61%, according to Reuters.
In addition, rising crude oil prices, buoyed by expanding US sanctions on Russian oil, are benefiting the commodity-linked CAD. As Canada is the largest oil exporter to the US, higher oil prices directly support the Loonie.
On the US side, the Bureau of Labor Statistics’ Friday report showed a solid 256,000 increase in Nonfarm Payrolls (NFP) for December, marking the strongest growth since March. Additionally, the Unemployment Rate dropped to 4.1%. This upbeat employment data could reinforce expectations that the Federal Reserve will maintain a hawkish stance for much of the year, which could lift the USD. Markets are pricing in just a 2.7% chance of a 25 basis point rate cut during the Federal Open Market Committee (FOMC) meeting on January 28-29, as per the CME FedWatch tool.
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