USD/CAD: No end in sight for Canadian dollar remarkable comeback

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on May 7, 2021
  • The USD/CAD pair has been on a major freefall in the past few months.
  • This performance is due to the divergence of the BOC and Fed.
  • The pair is reacting to the latest weak Canadian and US jobs data.

The USD/CAD price is on track for the sixth consecutive week in the red after the weak jobs numbers from the United States and Canada. The pair dropped to 1.2146, which was the lowest level since November 11 2017. 

USD/CAD
USD/CAD price action

Canada and US jobs numbers

The Canadian economy has had a relatively strong recovery, helped by the surging crude oil prices, ongoing vaccinations, and its proximity with the United States. 

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However, the labour market remains shaky, according to the latest data by Statistics Canada. According to the statistics bureau, the country lost more than 207,000 jobs in April after adding more than 303k in March. This decline was worse than the expected 175k. In the same period, the unemployment rate rose from 7.5% to 8.1% while the participation rate declined to 64.9%.

This trend will likely change in the coming months as the Canadian government increases its vaccination process. It has already vaccinated more than 15 million people. Additionally, the strength of the United States economy will also have a positive impact on the country’s economy. For example, the upcoming infrastructure project is expected to lead to more Canadian imports.

The USD/CAD is also reacting to the latest US jobs numbers. According to the Bureau of Labour Statistics, the US non-farm payrolls rose by more than 266,000 after rising by more than 900k in the previous month. The unemployment rate also rose to 6.1% while the participation rate also rose.

The USD/CAD fell mostly because of the divergence between the Federal Reserve and the Bank of Canada (BOC). The BOC has already started tightening monetary conditions while the Fed has insisted that the easy-money policies will continue. 

USD/CAD technical forecast

USD/CAD
USD/CAD technical chart

The daily chart shows that the USD/CAD has been in a strong downward trend for months. Along the way, it has formed a descending channel that is shown in black. Indeed, this week, the pair made a bearish breakout. It is also below the dots of the Parabolic SAR indicator and the 25-day moving averages. The Relative Strength Index (RSI), which has been falling, reached the oversold level. Therefore, the pair may keep falling as forex investors target the next key support level at 1.200.

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