USD/CAD rebound strongly reclaims 1.3500 amidst US data, improved debt ceiling talks

• A robust US jobs report supports bullish sentiment for the greenback, suggesting a potential pause in Federal Reserve’s tightening cycle is less likely.
• Progress in US debt ceiling negotiations drives positive sentiment, with an agreement anticipated within the week to prevent potential default.
• Canadian housing data disappoints as the New Housing Price Index contracts in April, adding to downside pressures for CAD.

USD/CAD rises sharply and reclaims the 1.3500 figure after hitting a daily low of 1.3442. US political issues regarding the debt ceiling had taken center stage, and progress on the theme triggered an upbeat sentiment. Additionally, a solid US jobs report could deter the US Federal Reserve (Fed) from pausing its tightening cycle. At the time of writing, the USD/CAD is trading at 1.3516.

Solid US data and positive sentiment drive USD/CAD, overcoming Canadian housing market headwinds

Fundamental news from the United States (US) bolstered the appetite for the greenback. A goodish US jobs report showed the tight labor market, with Initial Jobless Claims rising below estimates. Meanwhile, the Philadelphia Fed Manufacturing production for May was negative, though it showed some improvement amidst several headwinds like sticky inflation and higher interest rates. Given the backdrop, it might deter Federal Reserve officials from pausing due to the tightness of the labor market.

Meanwhile, US equities got bid as negotiations about an increase of the US debt ceiling. Recent remarks from House Speaker Kevin McCarthy underlined the urgency for an agreement to be finalized this week and for Congress to vote next week ahead of the US default deadline.

Of late, remarks from US Senate Majority Leader Schumer commented that debt limit talks are making progress. Biden’s economic adviser Lael Brainard said that Congress’s most significant risk is failing to prevent a default.

On the Canadian front, housing data pointed to further deterioration. The New Housing Price Index for April plunged -0.1% MoM, below the prior’s month report, and annually based, dropped -0.2%, below March’s 0.2% gain.

On the central bank note, Federal Reserve officials sounded hawkish, with Dallas Fed President Lorie Logan saying that data this time does not support skipping rate hikes at the next meeting, adding that the Fed has not made the progress we need on inflation.

Bank of Canada’s Governor Tiff Macklem and Deputy Governor Rogers said financial institutions should adjust to higher rates. Macklem added that April CPI data was stronger than expected and economic data will guide June’s rate decision.

USD/CAD Technical Level