USD/CAD rallies over 100 pips, pushes towards 1.2800 after strong US/weak Canadian labour market reports

• USD/CAD rose to fresh weekly highs near 1.2800, 100 pips up from earlier lows on Friday.
• The catalyst for the bullish move was weak Canada/strong US labour market data.

USD/CAD got a double whammy of bullish impetus on Friday in the form of much stronger than expected US labour market data (USD bullish) and much weaker than forecast Canadian labour market data (CAD bearish). USD/CAD lurched to fresh weekly highs near 1.2800, a more than 100 pip or roughly 0.7% intra-day rally from earlier session lows in the 1.2660s. The pair appeared to run out of bullish momentum as it approached the 1.2800 level, with sellers coming in ahead of last week’s highs and a melt-up in crude oil prices helping to give the loonie a floor. WTI is up more than $2.0 on the day and at one point hit $93.00, fresh seven-year intra-day highs.

In light of the latest US and Canadian employment data for January, USD/CAD traders will now be reassessing their Fed/BoC calls for the coming months. Friday’s US jobs data, which saw a massive headline NFP beat, hot wage growth and a jump in labour force participation, has been interpreted as raising the risk of a 50bps move in March. Meanwhile, market commentators remarked that they did not think the latest Canadian numbers would deter the BoC from hiking by 25bps in March, given that the latest job losses relate to Omicron lockdowns and are expected to quickly come back.

Nonetheless, the latest data does highlight some economic divergence between the US and Canada and raises the risk that the Fed outpaces the BoC when it comes to monetary tightening this year, a fact that could offer USD/CAD long-term support. Next week, the main focus for USD/CAD trades will be on US Consumer Price Inflation data on Wednesday that may offer markets further reason to bet on a 50bps March hike from the Fed. Otherwise, Fed and BoC speak will be key themes to watch.