The Canadian dollar traded higher against the US dollar in the previous days and traders anticipate the release of the September’s employment report on Friday at 12:30 GMT. Even as oil prices have reached new highs, the Canadian dollar has been on a steady downward trend since June.
In August, Canada’s unemployment rate declined for the third consecutive month to 7.1% the lowest unemployment rate since the beginning of the covid-19 pandemic. The unemployment rate is predicted to drop to 6.9% in September, while the economy is expected to add 65K jobs from 90.2K jobs in the preceding month. If the data shows a higher increase, the loonie could gain more ground against the dollar.
Oil rises to 7-year high after OPEC+ meeting
On Monday, OPEC+ made an announcement that it would continue implementing the existing agreement to increase oil output. In July, they agreed to boost output by 400,000 barrels per day each month until April 2022 to phase out 5.8 million bpd of existing production cuts. Oil surged to a seven-year high of $78.36/per barrel, supporting the loonie.
The Bank of Canada’s steady reduction in bond purchases hasn’t been enough to offset the negative consequences of a general decline in risk appetite and a resurgent US dollar. During the latest policy meeting, policymakers expected the economy to strengthen in the second half of 2021, while the fourth wave of covid infections and continued supply shortages could slow the recovery. Furthermore, the Bank of Canada believes that the Canadian economy still has significant surplus capacity and that the recovery will continue to need extraordinary monetary policy.
Loonie eases after the rise to 1-month high
The Canadian dollar strengthened versus the US dollar on Monday, reaching its highest level in over four weeks, as higher oil prices played a stronger role.
If the employment report shows slower job growth and a higher unemployment rate, it might push the pair closer to the 40- and then to the 20-day simple moving averages (SMAs) at 1.2650 and 1.2685 respectively. Higher still, the market could turn the focus to the 1.2770 barrier ahead of the 1.2900 psychological level.
A better-than-expected jobs report could encourage the bears to test the 1.2490 barrier as immediate support after meeting the 200-day SMA at 1.2512. If selling demand remains strong, the 1.2420 barrier might be the next target ahead of the 1.2200 handle.
However, given the current level of concern about global growth, any positive surprise from the employment numbers would most likely be minor.
