USD/CAD Price Analysis: Dollar gains momentum ahead of NFP

• US services PMI data came in at 54.9, well above the forecast of 51.7.

• Market participants are pricing in a 65% chance of a 25bps rate cut in November.

• Canada’s services PMI fell from 47.8 to 46.4 in August.

USD/CAD price analysis shows bulls heading ahead of dollar firms after upbeat US trade activity data and ahead of non-farm payrolls. At the same time, a shift in the Fed’s policy outlook and tensions in the Middle East supported the greenback. Meanwhile, the loonie was weak after disappointing business activity data.

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On Thursday, the dollar received a boost from services PMI data, which came in at 54.9, well above the forecast of 51.7. Strong business activity in the services sector indicates a robust economy. Consequently, the Fed may prefer a gradual pace of rate cuts. As a result, market participants are pricing in a 65% chance of a 25bps rate cut in November.

Moreover, Powell recently confirmed that the Fed will move at a slower pace with two small cuts before the end of the year. However, as more data emerges, this perspective may change.

The next report will show US job growth and unemployment in September. Analysts believe the economy will add 148,000 workers, while the unemployment rate remains at 4.2%. An unexpected outcome could cause volatility, influencing expectations of a Fed rate cut.

Elsewhere, tensions in the Middle East kept demand for the dollar high. Meanwhile, while oil also rose, the Canadian dollar fell on weak economic data. Canada’s services PMI fell from 47.8 to 46.4 in August. A bad economy means more rate cuts, which will hurt the looies.

Key USD/CAD Events Today

• US Average Hourly Earnings m/m
• The shift in the U.S. non-farm labor force
• US unemployment rate

USD/CAD Price Technical Analysis: Targeting 1.3580

Technically, the USD/CAD price is rising after rebounding from the key support level of 1.3475. The price is climbing above the 30-SMA, supporting an uptrend. At the same time, the RSI is trading in the upper part of bullish territory. Therefore, it could soon reach the overbought region, which happens when the price is in a solid uptrend.

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If this move continues, it could break at the key resistance level of 1.3580. Here, it could pull back to retest the 30-SMA before the uptrend continues. A break above 1.3580 would strengthen the uptrend.

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