USD/CAD surges on stronger US Dollar

The latest interest rate hike decided by the Fed was a shock for the USD/CAD on Wednesday, dragging the pair to fresh year-to-day lows. Falling oil prices and solid US labour market data underpinned the pair. As expected, USD/CAD traders are eyeing Friday’s US Nonfarm Payrolls data alongside ISM Non-Manufacturing PMIs.

The US Dollar Index advances 0.45%, up at 101.62, a tailwind for the USD/CAD pair. The American dollar’s recovery is due to the Euro and British Pound continuing to extend their losses versus the dollar, notably the Sterling, down by 1%.

The USD/CAD pair is recovering some ground after posting minimal losses on Wednesday, which sent the pair into the red, to test the 200-day Exponential Moving Average (EMA) at 1.3255 after the US Federal Reserve decided to raise rates.

At the time of writing, the USD/CAD is trading at 1.3326 after hitting the 1.3262 low. On Wednesday, the Fed lifted rates to the 4.50%-4.75% range as expected, and Fed Chair Jerome Powell said that ongoing increases to the Federal Funds rate (FFR) would be appropriate and emphasized the Fed’s commitment to tame inflation to the 2% target.

Though Powell said that a couple of increases are likely in March and May, his acknowledgment that the disinflationary process had begun was perceived by market participants as a dovish signal. Thursday’s US economic calendar revealed the unemployment claims for the last week that ended on January 28, with Initial Jobless Claims falling to 183K from 186K a week earlier and less than the 200K projected by polls.

Labour market data added to Wednesday’s JOLTS report, which showed that vacancies rose, signaling that the labor market remains tight.

On the Canadian front, the Canadian dollar is still weaker on Thursday, influenced by factors including falling US crude oil prices, with WTI’s down 0.27%, at $76.46 per barrel. In addition, to building permits, which shrank -7.3% in December, above the previous month’s decline of -14.9% but above estimates of a -5% contraction, as reported by Statistics Canada.

On Friday, an absent Canadian economic docket would leave USD/CAD traders leaning on the dynamics of the United States. On the US front, employment data led by the Nonfarm Payrolls report, alongside the ISM Non-Manufacturing report, would update the US economy status.