USD/CAD walks on a thin rope around 1.3330 ahead of Canada’s Employment

• USD/CAD is expected to show a vertical decline below 1.3320 as the upside in the USD index seems restricted.
• The Canadian Dollar is struggling to firm its feet ahead of Canada’s Employment data.
• The US labor market is easing some heat and allowing the Fed to strictly consider a neutral interest rate policy.

The USD/CAD pair is expected to deliver a perpendicular fall after a breakdown of the crucial support of 1.3320 in the European session. The Loonie asset is struggling in maintaining its strength ahead of Canada’s Employment data (May).

S&P500 futures have recovered significant losses added in early London, portraying a solid recovery in the risk appetite of the market participants. The US Dollar Index (DXY) is facing barricades while extending its recovery to near 103.60. It seems that the recovery move in the USD Index is expected to conclude as it was not backed with any fundamental support.

On Thursday, a heavy sell-off was recorded in the USD Index after the United States Department of Labor reported a sharp rise in individuals applying for Initial Jobless Claims for the week ending June 02. Jobless claims soared by 28K to 261K vs. the estimates of 235K. This indicated that the tight US labor market is easing some heat and allowing the Federal Reserve (Fed) to strictly consider a neutral interest rate policy.

On the Canadian Dollar front, Employment data will be keenly watched. Analysts at TD Securities expect job growth to slow to 25K in May for a deceleration from the recent trend of 57K, keeping the Unemployment Rate stable at 5.0%. We look for service-sector hiring to drive the headline print, alongside a rebound in full-time employment after the pullback in April. We also look for wage growth to remain elevated at 5.1%, down 0.1pp from last month.

Meanwhile, the oil price is facing difficulties while approaching near $72.00 amid a bleak oil demand outlook. The deflation situation in China showed that domestic demand is extremely weak. Also, the overall demand in the US economy looks vulnerable as their factory activity is consistently contracting.

It is worth noting that Canada is the leading exporter of oil to the United States and the weak oil price could impact the Canadian Dollar.