USD/CAD slips as risk appetite improves, US Dollar weakens on Fed’s pausing in May

• USD/CAD approaches the 100-day EMA at 1.3520, yet shy of testing it.
• US Bureau of Labor Statistics (BLS) reveals unemployment claims rise above estimates.
• US GDP for Q4 2022 slides a tick below expectations at 2.6%.

USD/CAD stumbles below the 50-day Exponential Moving Average (EMA) spurred by a risk-on impulse, as shown by Wall Street opening in the green. Market participants estimated that the US Federal Reserve (Fed) would not hike rates at the May meeting while the buck weakens. At the time of typing, the USD/CAD is trading at 1.3528, below its opening price by 0.22%.

USD/CAD falls on US unemployment claims rising, easing the Fed’s job

The Canadian Dollar (CAD) strengthened for the fourth straight day, with the USD/CAD tumbling below 1.3600 for the first time since March 7. The greenback’s fall continued after the US Bureau of Labor Statistics (BLS) revealed unemployment claims. Initial Jobless Claims for the week ending on March 25 rose 198K, above estimates of 196K.

At the same time, the US Commerce Department revealed the Gross Domestic Product (GDP) for Q4 2022 on its final reading, it came a tick below 2.7% estimates, at 2.6%

The US labor market data is a relief for the Federal Reserve, as the central bank is trying to curb stickier inflation levels above 6%. If the labor market continues to cool down, that will ease inflationary pressures. Nevertheless, the Fed’s preferred gauge for inflation will be revealed on Friday. The Core Personal Consumption Expenditure (PCE) is estimated at 4.7% YoY. Readings above the consensus could open the door for additional rate increases, meaning that the US Dollar (USD) could appreciate in the near term; hence further upside in the USD/CAD can be expected.

Nevertheless, the USD/CAD has held below 1.3600 on rising oil prices. WTI, the US crude oil benchmark, is increasing 1.88%, at $74.16 PB, a headwind for the USD/CAD. A good part of Canada’s economic growth is linked to oil and natural gas exports.

On the Canadian side, January’s Gross Domestic Product (GDP) is expected at 0.3% MoM. Analysts at TD Securities noted, “We look for industry-level GDP to rise by 0.4% m/m in January, in line with the market consensus and slightly above flash estimates for a 0.3% gain. Details should reveal broad-based strength across goods and services, and if realized, our forecast would leave Q1 GDP tracking further above BoC projections of 0.5%.”

USD/CAD Technical analysis

Despite the recent four-day pullback, the USD/CAD is still neutrally biased. Sellers need to drag prices below the 50-day EMA at 1.3520, which would open the door to testing 1.3500. Further downside below the figure will expose the 200-day EMA at 1.3369. But if USD/CAD buyers step in around 1.3500, the USD/CAD could test the 20-day EMA at 1.3648 in the short term.