USD/CAD retreats towards 1.2800 amid cautious mood ahead of US, Canada employment data

• USD/CAD fades bounce off weekly low, pares the biggest daily gains in a fortnight.
• Oil prices remain firmer despite OPEC’s offer as geopolitical risks keep favoring energy bulls.
• BOE’s inflation, growth forecasts triggered a bout of risk-aversion and reversed post-Fed optimism the previous day.
• Fed’s expectations of slower NFP growth, BOC’s hawkish comments highlight jobs report for clear directions.

USD/CAD pares the latest gains around 1.2830 as traders turn cautious ahead of the key employment data from the US and Canada on Friday. The Loonie pair’s latest weakness could also be linked to the recently firmer prices of WTI crude oil, Canada’s key export, as well as the market’s consolidation amid a wait for full markets.

The quote refreshed the weekly low earlier on Thursday before the risk-off mood propelled prices towards posting the biggest daily gains in two weeks. The Bank of England’s (BOE) forecasts suggesting doubt-digit inflation and economic recession could be cited as the key catalysts for the latest risk-aversion that recalled the USD/CAD bulls.

While cheering the sour sentiment, the Loonie pair couldn’t justify the firmer oil prices, mainly favored the by Thursday’s verdict of the OPEC+ group, comprising the Organization of the Petroleum Exporting Countries (OPEC) countries and allies including Russia. The oil cartel announced to continue with the current policy of raising monthly output by 432K barrels per day (BPD). 

Also supporting the oil prices, as well as weighing on the risk catalysts is the European Union’s (EU) oil embargo on Russian imports. That said, the WTI crude oil prices stay mildly bid around $107.70 by the press time after refreshing a six-week high the previous day.

While portraying the risk-aversion, Wall Street indices slumped more than 3.0% each while the US 10-year Treasury yields rallied 3.40% on a daily closing while rising to the fresh high in late 2018 beyond 3.00%. As a result, the US Dollar Index (DXY) also regained its strength and poked April’s multi-month high around 104.00.

The USD/CAD prices are likely to remain sluggish as traders await the key economics. The scheduled jobs report become even more important after the Bank of Canada’s (BOC) hawkish stand and the Fed’s forecasts assuming an absence of major employment growth going forward.

Forecasts suggest the headline US Nonfarm Payrolls (NFP) to ease to 391K from 431K whereas the Unemployment Rate may also decline to 3.5% from 3.6%. On the other hand, Canadian Unemployment Rate is expected to soften to 5.2% from 5.3% with the likely reduction in the Net Change in Employment to 55K, versus 72.5K prior.

Technical analysis

Although 21-day EMA puts a floor under short-term USD/CAD prices around 1.2730, the quote needs to stay beyond 1.2830, comprising nearby previous resistance, to aim for further upside.