FX.co ★ USD/CAD Trading Outlook

Amid the Canadian Nonfarm Payrolls published yesterday, the uptrend that had been observed over the past several days slowed down. The USD/CAD pair has been steadily rising this week, moving towards the 1.3500 level. The upbeat data on the Canadian labor market provided support for the loonie, but it was not enough to reverse the trend. Therefore, long positions remain relevant, while selling appears too risky. However, it is not worth rushing to open any trading positions before the publication of the U.S. Nonfarm Payrolls. The American release may change the fundamental situation if the published figures deviate significantly from preliminary estimates.

Loonie ignores the inflation data

Overall, USD/CAD traders currently focus on the dynamics of the U.S. currency. The loonie has lately been effectively ignoring its macroeconomic releases, following the greenback trajectory. For example, after the publication of the latest inflation growth data in Canada that demonstrated a decline in the Consumer Price Index, the USD/CAD pair ignored this data and continued moving downward, taking advantage of the weakness of the U.S. currency. This behavior of the loonie is primarily explained by the position of the Canadian central bank, expressed at the March meeting. At that meeting, the regulator announced a pause by keeping the benchmark interest rate at its current level of 4.5%. The bank clarified that it intends to hold the rate further, provided that the country's economy develops in line with forecasts. The focus was mainly on inflationary growth dynamics.

Therefore, traders calmly reacted to the downbeat inflation release. At the same time, the headline CPI in annual terms came in at 5.2% versus a forecast of a decline to 5.4%. The indicator has been consistently decreasing for the fourth consecutive month. The core Consumer Price Index showed a similar dynamic, falling to 4.7% in February following an increase to 5.0% in January.

Generally speaking, this report did not have any major impact. It only confirmed the fact that the Bank of Canada will maintain a wait-and-see stance in the foreseeable future.

Canadian Nonfarm Payrolls and Reuters Survey

Similar conclusions can be drawn about the Canadian Nonfarm Payrolls data that was released yesterday. The report was better than expected. In particular, the country's unemployment rate remained at 5.0% in March, against an expected increase to 5.1%. The indicator has been at this level for the fourth consecutive month. The number of employed people increased by 34,000 against an expected increase of 10,000. According to forecasts, the number of full-time employed people was supposed to decrease by 5,000. In fact, it rose 18,000 in March, while the part-time employment increased by 16,000.

Despite the upbeat data, USD/CAD traders reacted to it calmly enough. The only thing that sellers of the pair achieved was to halt the development of the upward trend. But this achievement was temporary, as today the pair has again started to climb up towards the 1.3500 level. If the US labor market report supports the greenback, USD/CAD buyers will likely ignore the Canadian figures. Therefore, the pair has every chance of breaking above the 1.3500 level.

Today, Reuters released a survey of thirty economists regarding the Bank of Canada's possible future actions. Most of them, 22 out of 31, expressed confidence that the regulator will maintain its key interest rate at 4.50% until the end of this year. Nine experts disagreed with their colleagues, suggesting that the Canadian regulator will undertake at least one rate cut of 25 basis points by the end of this year. At the same time, all respondents unanimously stated that they expect the bank to maintain the status quo at the upcoming April meeting.

This snapshot of opinions suggests that the Canadian dollar will remain influenced by the US currency.

Conclusion

Canadian macroeconomic reports are currently unable to change the Bank of Canada's position, so they are essentially ignored by USD/CAD traders. At the same time, the US Nonfarm Payrolls can fuel increased volatility in the pair: either to the downside or to the upside.

If the release favors the greenback, the pair may test the nearest resistance level of 1.3520 which is the upper border of the Kumo cloud on the D1 timeframe. The next target lies at the 1.3550 level (the Tenkan-sen line on the daily chart). The main target of the upward movement in the medium term is located at the 1.3610 level which is the middle line of the Bollinger Bands indicator on the same timeframe.