USD/CAD stabilizing below 1.2800 handle after 70-pip boost

• The election in Iraq can lead to oil production disruption.
• USD/CAD bounces on weaker Canadian employment data, but the "report is not that bad" analyst says.

The USD/CAD is trading at around 1.2786 up 0.18% on Friday.

The Loonie started the day in Asia rather flat and European traders brought the pair down to the 1.2730 level. In the American session, the Canadian employment data came below estimates and the USD/CAD got a 70-pip boost and flirted with the 1.2800 resistance. The market is now consolidating below the 1.2800 handle. 

The Canadian dollar strengthens this week as it was boosted by oil prices. On Tuesday, US President Donald Trump made an official announcement in which he said that the US was withdrawing from the current Joint Comprehensive Plan of Action, more commonly known as Iran nuclear deal. Trump said that the US was planning to impose harsher sanctions on Iran which is one of the biggest oil producers. The news was bullish for crude oil because diplomatic tensions can lead to an oil supply squeeze from Iran. According to analysts, 300,000 to 500,000 barrels of oil per day can be at risk. 

Meanwhile, the election in Iraq this Sunday can potentially disrupt oil production and therefore boost crude prices. “ Plans for expanding the country’s oil production capacity could also be affected by the change of government, including the South Integrated Project managed by Exxon and PetroChina, which would be instrumental in allowing Iraq to boost production to 8 million bpd in the future,” says Irina Slav from Divergente LLC. “Iraq is OPEC’s second-largest oil producer, so any political shifts in the country will have a direct and palpable effect on oil prices,” she also said. 

Earlier in the day, the Canadian Unemployment Rate in April came in-line with analysts expectations while the Net Change in Employment in April came below expectations at -1.1K versus 17.4K forecast by analysts. The Participation Rate came slightly below estimates at 65.4% versus 65.5% expected.

Interestingly Krishen Rangasamy from National Bank of Canada says that “The April employment report is not as bad as it looks” pointing out that “the soft headline number doesn’t necessarily mean Canada’s labor market is struggling.” Adding that “a colder-than-usual April may have temporarily hurt hiring in some sectors. The weakness was also largely due to declines in self-employment and the public sector. But more importantly, private sector employment rose by the biggest amount since November of last year”. The analyst concluded by saying “the April jobs report does nothing to change our view that the labor market remains tight and will continue to fuel inflation pressures this year. As such, we continue to call for a July interest rate hike from the Bank of Canada.”

USD/CAD 4-hour chart

The Loonie is close to three week’s low and the medium-term trend is bearish. Immediate support is seen at 1.2740 swing low followed by the 1.2700 figure. To the upside, resistance is seen at the 1.2800 and 1.2850 psychological levels. The pair is trading below its 50, 100 and 200-period simple moving averages which suggests a strong downward momentum.