USD/CAD Forecast: Rates down 50 bps after weak jobs data

• The US posted a lower-than-expected 7.67 million job vacancies in July.
• Investors have raised the likelihood of a 50bp Fed rate cut to 45%.
• The Bank of Canada cut rates by 25 bps on Wednesday, in line with expectations.

The USD/CAD forecast points to renewed dollar weakness after poor data increased the likelihood of a very large Fed rate cut in September. At the same time, the Canadian dollar strengthened with oil after reports of a possible delay in the October OPEC+ production increase.

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Data on Wednesday showed the US posted 7.67 million job vacancies in July. The figure hit a three-and-a-half-year low and missed estimates of 8.09 million. In particular, the Fed pays close attention to the labor market. Initially, this sector was the main driver of inflation. However, this has changed and the labor market is showing weakness. As a result, investors have raised the likelihood of a 50 bps rate cut to 45%. As a result, the dollar slipped, pushing the USD/CAD pair lower.

All eyes are now on the all-important Non-Farm Payrolls report. Economists expect some improvement from last month’s weak report. Therefore, any miss is likely to cause a lot of market turmoil. The unemployment rate shows the risk of a recession. Thus, another unexpected jump could raise recession concerns, further damaging the dollar. At the same time, it will strengthen the bets for a more significant reduction in the rate.

Meanwhile, as expected, the Bank of Canada cut rates by 25 bps on Wednesday. The Canadian dollar rose as investors had already priced in such a move. Moreover, the currency received support after reports that OPEC+ is discussing delays to the planned October production increase. This news sent oil prices higher due to prolonged market tightening.

Key USD/CAD Events Today

• US Non-Farm ADP Labor Change
• US Jobless Claims
• US ISM services PMI

USD/CAD Technical Forecast: Price action indicates bearish strength

Technically, the USD/CAD price is on the verge of breaking below the 30-SMA, indicating a change in sentiment. Prior to this, the bulls were in the lead and headed towards the 1.3600 resistance level. However, the price action suddenly changed and the bears made a large candle, indicating an increase in momentum. At the same time, the RSI dipped into bearish territory below 50.

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If the price breaks below the SMA, it will likely retest 1.3450. A break below this level would indicate a continuation of the previous downtrend.

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