USD/CAD tumbles below 1.3400 mark in reaction to upbeat Canadian employment data

• USD/CAD adds to its heavy intraday losses and drops back closer to the weekly low.
• Bullish oil prices, the upbeat Canadian jobs report boost Loonie and exert pressure.
• Hawkish Fed expectations, recession fears underpin the USD and should limit losses.

The USD/CAD pair extends its intraday retracement slide from the vicinity of the weekly high, around the 1.3475 region and continues losing ground through the early North American session. The downward momentum picks up pace in reaction to the upbeat Canadian employment details and drags spot prices to the 1.3370 area, or the lower end of the weekly range.

Statistics Canada reported that the number of employed people rose 150K in January, surpassing even the most optimistic estimates. Adding to this, the unemployment rate held steady at 5% against expectations for a modest uptick to 5.1%. This, along with the prevalent bullish sentiment surrounding crude oil prices, underpins the commodity-linked Loonie and exerts heavy downward pressure on the USD/CAD pair.

The US Dollar, on the other hand, stands tall near a one-month high and should limit losses, at least for now. Against the backdrop of the recent hawkish commentary by several FOMC members, a weaker tone around the equity markets - amid looming recession risks - is seen underpinning the safe-haven buck. This, along with the divergent Fed-BoC policy outlook, could lend support to the USD/CAD pair.

Investors seem convinced that the Fed will stick to its hawkish stance to tame inflation. In contrast, the Bank of Canada is expected to be the first major central bank to pause the policy-tightening cycle following eight rate hikes in the past 11 months. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair, warranting some caution for bearish traders.

Technical levels to watch