USD/CAD climbs after Canada jobs data surprises to the downside.
- USD/CAD edges higher as weak Canadian jobs data and easing Oil prices pressure the Loonie.
- Mixed US labor data failed to lift the Greenback, which remains under pressure amid hopes for a US-Iran deal to end the war.
- Fresh clashes near the Strait of Hormuz keep geopolitical risks elevated despite ongoing peace efforts.
USD/CAD edges higher on Friday as softer-than-expected Canadian employment data weighs on the Canadian Dollar (CAD), even as the US Dollar (USD) remains on the back foot following mixed US labor market data and hopes for a US-Iran deal to end the war. At the time of writing, the pair is trading around 1.3694 after briefly testing the 1.3700 mark, its highest level since April 29.
Data released by Statistics Canada showed that Net Change in Employment fell by 17.7K in April, sharply missing market expectations for a 15K increase and reversing the 14.1K gain recorded in March. The Unemployment Rate edged higher to 6.9% from 6.7% previously, while Average Hourly Wages slowed to 4.8% YoY in April from 5.1% in the previous month.
The growing slack in Canada’s labor market could force the Bank of Canada (BoC) to reassess its monetary policy outlook, potentially limiting its ability to tighten policy if Oil-driven inflation pressures intensify.
USD/CAD is also on track to end a four-week losing streak as a sharp pullback in Oil prices pressures the commodity-linked Loonie. The Canadian Dollar tends to be highly sensitive to movements in crude Oil, as Canada is one of the world’s largest Oil exporters.
Meanwhile, the US Dollar remains broadly pressured after mixed US labor market data reinforced expectations that the Federal Reserve (Fed) may maintain a cautious approach toward future policy easing. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 97.92, down roughly 0.37% on the day.
Data released by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) increased by 115K in April, beating market expectations of 62K but slowing from March’s 185K gain (revised from 178K). The Unemployment Rate held steady at 4.3%, in line with expectations.
Average Hourly Earnings rose 0.2% MoM in April, below the expected 0.3% and unchanged from the previous month. Annual wage growth accelerated to 3.6% from 3.4%, below the forecast of 3.8%.
Looking ahead, market attention remains focused on developments surrounding the US-Iran war after fresh reports of escalation between US and Iranian forces near the Strait of Hormuz raised doubts over the durability of the current ceasefire.
However, US President Donald Trump insisted that the ceasefire remains in effect, while Secretary of State Marco Rubio said on Friday that the United States expects a response from Tehran on its latest peace proposal later in the day.
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
How does Nonfarm Payrolls affect the US Dollar?
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
How does Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
