US and Canadian employment reports in focus

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    Topics for conversation about the Canadian dollar

    USD/CAD is trading towards a new monthly low (1.2789) as it cuts a series of lower highs and lows after The Federal Reserve’s interest rate decisionand fresh data coming out of the US and Canada could influence the near-term outlook for the exchange rate amid the ongoing shift in monetary policy.

    Fundamental Outlook for the Canadian Dollar: Neutral

    USD/CAD is depreciated the second week as US Gross Domestic Product (GDP) report. shows that the US economy is in a technical recession and the weakening growth outlook could continue to create headwinds for the greenback as it puts pressure on Federal Open Market Committee (FOMC) to end its hiking cycle.

    However, updating the payroll in non-agricultural enterprises (NFP) report could prompt the FOMC to raise rates by another 75 bps. at the next interest rate decision in September, as the economy is expected to add 250,000 jobs in July, and the positive development could reverse the recent slide in USD/CAD as it raises the Fed’s rate room for very tight policy.

    Meanwhile, Canada’s employment recovery could weigh on USD/CAD as the Bank of Canada (BoC) decides “front-loading your way to higher interest rates” and improving labor market conditions could lead to an exchange rate reaction, with both central banks set to adjust monetary policy further in the coming months.

    Until then, USD/CAD may struggle to hold on to a series of lower highs and lows, but another unexpected Canadian employment cut could trigger a bearish Canadian dollar reaction as it curbs speculation for another 100bps. BoC rate hike

    That said, USD/CAD could continue to depreciate as it trades to fresh monthly lows in late July, but fresh data prints coming from the US and Canada can sway closer perspective for the exchange rate against the backdrop of ongoing changes in monetary policy.

    — Posted by David Song, Currency Strategist

    Follow me on Twitter at @DavidJSong

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