Canadian Dollar remains on the front foot vs USD as US and Canada jobs data loom

The USD/CAD pair consolidates below the 1.3800 mark during the Asian session on Friday and remains close to a nearly two-week low, touched the previous day. Nevertheless, spot prices seem poised to register heavy weekly losses, and the fundamental backdrop backs the case for an extension of the sharp corrective decline from the 1.3940 region, or a three-week top touched on Wednesday.

Crude oil prices continue to trade near the highest level since July 24 as the geopolitical risk premium remains in play amid the ongoing US-Iran clashes over the Strait of Hormuz. Furthermore, the Bank of Canada’s (BoC) hawkish message at its September policy meeting might continue to underpin the commodity-linked Loonie and validate the near-term negative outlook for the USD/CAD pair amid a weak US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, plunged to an over one-week low on Thursday amid receding Federal Reserve (Fed) September rate hike bets. Fed Governor Christopher Waller said that inflation is showing some signs of slowing, leaving the door open for keeping policy unchanged. Traders responded by pushing US bond yields lower, which keeps USD bulls on the defensive.

Investors, however, seem hesitant to place fresh directional bets and opt to wait for more cues about the Fed's future policy path. Hence, the focus will remain glued to the US Nonfarm Payrolls (NFP) report, which will be accompanied by Canada's monthly employment details. The crucial data, along with further developments surrounding the Middle East crisis, should provide some impetus to the USD/CAD pair heading into the weekend.

Dollar support seen as contingent on upcoming us inflation data

According to TD Securities, even a robust labour market print will only take the Fed so far. The bank argues that “a strong payrolls report is a necessary but not a sufficient condition for the Fed to hike in September,” noting that “the more important piece of the puzzle is inflation as part of the strength in the NFP can be considered to be a reversal of the July weakness.” In their view, “a strong payrolls report, in line with our macro team's view above, will give a slight boost to the USD but is unlikely to push the committee towards a hike unless followed by a strong inflation print,” underscoring that upcoming price data, rather than jobs alone, will be decisive for the policy outlook and Dollar direction.

USD/CAD daily chart

Technical Analysis

This week's failure to find acceptance above the 100-day Simple Moving Average (SMA) and the subsequent decline below the 61.8% Fibonacci retracement favor bearish traders. This configuration suggests rallies are likely to be sold while price trades under this overhead band, leaving spot prices vulnerable to further downside.

On the topside, immediate resistance is seen at the 61.8% Fibo. retracement at 1.3819, followed by the 50% retracement at 1.3901 and the 100-day SMA at 1.3920, with higher barriers at the 38.2% retracement at 1.3983 and the 23.6% level at 1.4084 before the recent Fibonacci anchor near 1.4248.

On the downside, initial support emerges at the 78.6% retracement around 1.3702, with a stronger structural floor at the 100% retracement near 1.3554, where sellers could be inclined to take some profits if the decline extends.