USD/CAD sustains above 1.3350 ahead of US/Canada labor market data

• USD/CAD jumps above 1.3350 as the focus shifts to US/Canada employment data.
• Market sentiment is quite bearish after Fitch downgraded the United States government's long-term credit rating.
• The US Dollar Index drops sharply as Q2 Unit Labor Costs expanded at a slower pace than expected.

The USD/CAD pair climbs above the crucial resistance of 1.3350 amid strength in the US Dollar in the early New York session. The Loonie asset remains in the bullish trajectory as the market sentiment is quite bearish after Fitch downgraded the United States government's long-term credit rating.

S&P500 futures generate losses in Europe amid cautious market mood. US equities were heavily sold on Wednesday after Fitch downgrade citing concerns about higher fiscal spending in coming years. The market mood remained risk-off despite US Treasury Secretary Janet Yellen calling Fitch's downgrade to the US government ‘entirely unwarranted’ amid a resilient labor market, spending, and easing inflationary pressures.

The US Dollar Index (DXY) drops sharply as Q2 Unit Labor Costs expanded at a slower pace than expectations. The economic data grew by 1.6% while investors were anticipating a higher pace of 2.6%. A significant decline in wage prices signals that inflationary pressures would soften further. The decline in disposable income would slow down the resilience in consumer spending and reduce the purchase of big-ticket items.

Meanwhile, individuals claiming jobless benefits for the very first time remain in line with expectations at 227K for the week ending July 28.

Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data, which will be published on Friday at 12:30 GMT. On Wednesday, Automatic Data Processing (ADP) reported the addition of fresh payrolls by 324K vs. expectations of 188K. This has set a positive undertone for the NFP data.

On the Canadian Dollar front, investors are also awaiting the labor market data. As per the estimates, the Canadian labor market witnessed fresh additions of 21.1K employees, lower than the prior reading of almost 60K. The Unemployment Rate is expected to increase to 5.5% against the former release of 5.4%.