USD/CAD pares Wednesday’s losses and climbed back above 1.3300 on a buoyant US Dollar

• The rate hike by the US Federal Reserve tumbled the USD/CAD to new YTD lows.
• Falling oil prices and solid US labor market data underpinned the USD/CAD.
• USD/CAD traders are eyeing Friday’s US Nonfarm Payrolls data alongside ISM Non-Manufacturing PMIs.

USD/CAD is recovering some ground after posting minimal losses Wednesday, which sent the pair into a tailspin to test the 200-day Exponential Moving Average (EMA) at 1.3255 after the US Federal Reserve decided to raise rates. At the time of writing, the USD/CAD is trading at 1.3312 after hitting a new YTD low of 1.3262.

Fed’s dovish perceived hike undermined the US Dollar

On Wednesday, the Fed lifted rates to the 4.50%-4.75% range as expected, and Fed’s Chair Jerome Powell took the stand. He said that ongoing increases to the Federal Funds rate (FFR) would be appropriate and emphasized the US central bank’s commitment to tame inflation to the 2% target. Even though he said that a couple of increases are likely in March and May, his acknowledgment that the disinflationary process had begun was perceived by market participants as a dovish signal.

In the meantime, Thursday’s US economic calendar revealed the unemployment claims for the last week that ended on January 28, with Initial Jobless Claims falling to 183K from 186K a week earlier and less than the 200K projected by polls. Labor market data added to Wednesday;’s JOLTs report, which showed that vacancies rose, signaling that the labor market remains tight.

In the meantime, the US Dollar Index (DXY) advances 0.45%, up at 101.62, a tailwind for the USD/CAD pair. The greenback’s recovery is due to the Euro and British Pound continuing to extend their losses vs. the buck, notably the Sterling, down by 1%.

On the Canadian front, the Loonie (CAD) remained soft on Thursday, influenced by factors like falling US crude oil prices, with WTI’s down 0.27%, at $76.46 per barrel. Another reason that weighed on the Canadian Dollar (CAD) was building permits, which shrank -7.3% in December, above the previous month’s plunge of -14.9% but above estimates of a -5% contraction, as reported by Statistics Canada.

What to watch?

On Friday, an absent Canadian economic docket would leave USD/CAD traders leaning on the dynamics of the United States (US). On the US front, employment data led by the Nonfarm Payrolls report, alongside the ISM Non-Manufacturing report, would update the US economy status.

USD/CAD Key Technical Levels