USD/CAD drops below 1.3700 as risk-off tone eases, US/Canada jobs eyed

• USD/CAD has slipped below 1.3700 as the risk-off mood has eased marginally.
• Fed’s hawkish guidance brought a sheer decline in risk-perceived currencies.
• Oil prices have reclaimed $89.00 on a decline in oil stockpiles reported by the EIA.

The USD/CAD pair has sensed selling pressure after registering a fresh weekly high at 1.3724 in the Tokyo session. The responsiveness of a decline in the asset is marginal in comparison with the late New York rally, therefore, it would be early to announce that the risk aversion theme has faded. S&P500 futures have displayed a rebound while the US dollar index (DXY) has dropped below the critical support of 112.00.

The 10-year US Treasury yields are stabilized around 4.12% as a bigger rate hike by the Federal Reserve (Fed) was followed by hawkish guidance. Despite pushing the interest rates to the highest at 3.75-4% since 2008, ceasing of more policy tightening seems far as Fed chair Jerome Powell has announced that pausing tightening measures is very premature at this stage.

Long-term inflation expectations are well anchored but short-term inflation expectations have not displayed a meaningful slowdown yet. Therefore, the Fed will continue its momentum toward achieving discussed terminal rate of 4.75%.

Risk-perceived currencies are taking a sigh of relief as wild gyrations are generally followed by a contraction in volatility. Going forward, the housing sector could face significant troubles as interest obligations are skyrocketing and households could postpone their demand for new homes. Apart from that investors will also keep an eye on delinquency costs.

On Friday, US/Canada employment data will remain in focus. The US Nonfarm Payrolls (NFP) is seen lower at 200k vs. the prior release of 263k. While the unemployment rate will increase to 3.6%.

Meanwhile, Canada’s Net Change in Employment is seen lower at 10k against the former figure of 21.1k. While the jobless rate is expected to decline to 5.2%.

Oil prices have resurfaced to $89.00 after a corrective move as a decline in oil stockpiles by the Energy Information Administration (EIA) has strengthened oil bulls. The EIA reported a decline in oil inventories by 3.115M barrels for the week ending October 28.