USD/CAD tumbles below 1.3650 on weak US private labor demand and Services PMI

USD/CAD declines to near 1.3620 as the US Dollar weakens after poor US data.
US private labor demand remained slowed and the Services PMI contracted in June.
Investors await the US/Canada official Employment data for June.

The USD/CAD pair falls sharply to near 1.3650 in Wednesday’s American session. The Loonie asset weakens as the US Dollar (USD) faces an intense sell-off after the United States (US) ADP Employment report showed that labor growth in the private sector surprisingly slowed in June and the ISM Services PMI report showed that activities in the service sector contracted significantly.

According to the report, private employers hired 150K job-seekers, missed estimates of 160K and the prior release of 157K, upwardly revised from 152K. This has deepened uncertainty over the labor market outlook. However, investors await the US Nonfarm Payrolls (NFP) report for June, which will be published on Friday. The US NFP report will provide clarity about the current status of the labor market.

Meanwhile, the Services PMI declined to 48.8 from expectations of 52.5 and the prior release of 53.8. A figure below the 50.0 threshold is itself considered as contraction in service activities. Other sub-components, such as the Prices Paid and New Orders Index, were weaker than their former readings.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has slumped to near 105.30.

On the Loonie front, investors await the Canadian Employment report for June, which will be published on Friday. The labor market report is expected to show that the Unemployment Rate increased to 6.3% from the prior release of 6.2%. Canadian employers hired 22.5K workers, which were lower than the former reading of 26.7K.

Strong Employment numbers would ease expectations of subsequent rate cuts by the Bank of Canada (BoC), while soft figures will boost them.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

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