USD/CAD struggles to break above 1.4400 ahead of US-Canada employment data

USD/CAD faces pressure to extend its upside above 1.4400 ahead of US-Canada labor market data for December.
The US Dollar performs strongly as the Fed has become worried about a potential slowdown in progress in the disinflation trend.
Soft Canadian employment data will boost hopes of BoC super-size rate cuts bets.

The USD/CAD pair struggles to extend its upside above the immediate resistance of 1.4400 from the last two trading sessions. The Loonie pair trades inside Wednesday’s trading range in Thursday’s European session, with investors focusing on the United States (US) and Canadian employment data for December, which will be published on Friday.

The US Nonfarm Payrolls (NFP) report is expected to show that the economy added 154K fresh workers in December, lower than the former release of 227K. The Unemployment Rate is expected to remain steady at 4.2%.

Ahead of the US NFP data, the US Dollar (USD) performs strongly across the board as the latest Federal Open Market Committee (FOMC) minutes have signaled that officials are worried about growing risks to a slowdown in the disinflation trend due to upcoming potential trade and immigration policy changes, which are expected under President-elect Donald Trump’s administration.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, stays firmly above the key support of 109.00.

Meanwhile, Trump is considering declaring a national economic emergency to formulate a new tariff plan on a legal footing. Investors consider this as a fresh escalation in the path towards a global trade war.

In the Canadian region, investors expect the labor market to have witnessed a fresh addition of 25K workers in December, almost half the number of job-seekers hired in November. The Unemployment Rate is seen accelerating to 6.9% from 6.8%. Signs of a slowdown in the labor demand would boost expectations that the Bank of Canada (BoC) will continue easing the monetary policy at a larger-than-usual pace of 50 basis points (bps).

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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