The USD/CAD exchange rate has pulled back sharply in the past few days after Donald Trump paused tariffs on Canadian goods. It initially jumped to a high of 1.4787 on Monday, and has now retreated to 1.4300, a 3.15% drop. So, what next for the USD to CAD pair ahead of the upcoming US nonfarm payrolls (NFP) and Canadian jobs numbers?
US nonfarm payrolls data ahead
The upcoming Federal Reserve nonfarm payroll data on Friday will be the main catalyst for the USD/CAD exchange rate. These data will provide more information about the state of the economy at the beginning of the year.
Economists expect these numbers to show that the US economy added 141,000 jobs in January after creating another 256,000 a month earlier. The unemployment rate is expected to remain steady at 4.1%, while the average hourly earnings will come in at 3.8%.
The official NFP data will come a few days after a separate report by ADP revealed that the private sector added 184,000 jobs in January. Historically, the ADP and Bureau of Labor Statistics (BLS) reports have not aligned because of how the data is collected.
The NFP numbers are highly important to the US dollar index because they impact what the Federal Reserve does since they are part of the dual mandate. In this, the Fed is tasked to ensuring that the unemployment and inflation rates remain low.
Friday’s report, however, will not cause substantial volatility because the Fed is primarily focused on inflation, which has remained higher for longer. The headline Consumer Price Index (CPI) rose from 2.7% in November to 2.9% in December, while the core CPI improved to 3.2%.
Further data showed that the US economy was doing well, with the manufacturing and services PMIs remaining above the expansion zone of 50.
Canada jobs data
The upcoming Canadian jobs numbers will be the other key catalyst for the USD/CAD exchange rate. Economists expect the data to show that the economy added over 25k jobs in December after creating 90k a month earlier.
The unemployment rate is expected to come in at 6.8% from the previous 6.7%, while the participation rate will be 65.1%.
The Canadian economy has been under pressure in the past few months, with the unemployment rate increasing and the affordability crisis intensifying.
This situation will likely get worse if Canada and the United States don’t reach an agreement on trade by end of the month. Donald Trump has suggested implementing a 25% tariff on Canadian goods and 10% on its energy.
Tariffs on Canada would likely lead to more slowdown of the Canadian economy and push the Bank of Canada (BoC) to be more aggressive in easing. It has slashed rates from 5.0% in 2024 to 3% as inflation moved to 1.8% from 8.1% in 2022.
USD/CAD technical analysis
USD/CAD chart by TradingView
The weekly chart shows that the USD/CAD exchange rate has retreated in the past few days. It has dropped from 1.4787 on Monday to a low of 1.4270.
The pair has formed a bearish engulfing pattern on the weekly chart. This pattern is made up of a large bearish candle that completely engulfs a small bullish candle.
Data shows that the MACD indicators are about to make a bearish crossover, a popular bearish sign. Therefore, the pair will likely continue falling as sellers target the 50-week moving average at 1.400.
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