USD/CAD skids below 1.3600 as upbeat oil and strong Canadian labor market data

• USD/CAD slips below 1.3600 despite nominal recovery in the US Dollar.
• Investors underpinned loonie against the greenback due to surprisingly upbeat Canadian labor market data.
• The market mood could turn cautious ahead of US inflation data, which will be published on Wednesday.

The USD/CAD pair corrects further below the round-level support of 1.3600 in the European session. The Loonie asset weakens despite a recovery attempt in the US Dollar Index (DXY). This demonstrates strength in the Canadian Dollar after upbeat Employment data for August and strength in the oil price due to the tight market.

S&P500 futures have added significant gains in the London session, portraying strength in the appeal for the risk-sensitive assets. Investors’ risk-taking ability improved after inflation in China for August month showed signs of stabilization.

The US Dollar Index (DXY) rebounds after discovering support near 104.50 as investors turn cautious ahead of the Consumer Price Index (CPI) for August, which is scheduled for Wednesday. Headline CPI is seen expanding at a higher pace of 0.5% vs. 0.2% pace, being recorded for July. Core inflation that strips off volatile food and oil prices is seen steady at 0.2%.

A surprise upside in the inflation pace could spoil the market mood and strengthen the US Dollar. Meanwhile, New York Federal Reserve (Fed) Bank President John Williams said last week that inflation is falling and the economy is better balanced, which indicates there is no urgency for an interest-rate increase this month.

The Canadian Dollar strengthened as the labor market data surprisingly outperformed expectations. The Canadian labor market witnessed 39.9K new payrolls in the overall laborforce in August, more than double the expectations of 15K. In July, the labor force witnessed a reduction of 6.4K payrolls. The Unemployment Rate remains unchanged at 5.5% while investors forecasted a higher jobless rate at 5.6%.

Annual Average Hourly Wages rose to 5.2% vs. the former release of 5.0%. Decent wage growth could elevate consumer spending momentum and keep inflationary pressures sticky. This could force the Bank of Canada (BoC) to raise interest rates one more time after pausing them in the last two policy meetings.