Canadian Dollar bounces up as weak US services data hits US Dollar

• Canadian Dollar bounces up with the US Dollar retreating on downbeat US data.
• US service sector activity decelerated against expectations with Prices Paid printing lowest level in years.
• Strong US ADP and hawkish comments from Fed’s Bostic have failed to support USD.

The Canadian Dollar (CAD) is trading higher on Wednesday, retracing the previous two days’ losses. The Loonie is favored by the US Dollar's knee-jerk reaction following downbeat US services activity data.

The US ISM Services PMI missed market expectations in March, with the Prices Paid sub-index showing a significant slowdown. This has eased investors' fears of a strong economy that would prompt the Federal Reserve (Fed) to dial down its monetary easing plans, which have pushed US Treasury yields and the US Dollar lower.

The downbeat services data has offset the larger-than-expected increase in the ADP Employment Report, which opens the doors for a bright Nonfarm Payrolls reading on Friday that might restore confidence in the US Dollar.

Beyond that, the increasing geopolitical tensions and growing concerns about tighter supply have pushed crude prices to a fresh year-to-date (YTD) high. This is providing additional support to the commodity-linked CAD. 

Daily digest market movers: USD/CAD dives as services activity data disappoints

• Later on Wednesday, Fed Chair Jerome Powell will speak about the US economic outlook and might shed some light on the central bank’s monetary policy plans. 
   
• Canadian Dollar regained lost ground on Wednesday with the USD under pressure ahead of Fed Powell’s speech.
   
• US ISM Services PMI dropped to 51.4 in March from 52.6 in February against market expectations of a slight increase to 52.7.
   
• The ISM Prices Paid sub-index has dropped to 53.4, its lowest level in years, from 58.6 in February and 64 in January. This signals a disinflationary contribution to the economy.
   
• Earlier on Wednesday, the US ADP Employment Report showed an increase of 184,000 new payrolls in March from 155,000 in February. The market had forecasted a decline to 148,000.
   
• Atlanta Fed President Raphael Bostic struck a hawkish note on Wednesday suggesting that rate cuts might not arrive after the Q4.