Canadian Dollar Falls After Labour Market Data Release

On Friday, disappointing figures showed that in August the Canadian economy lost 65,500 jobs (the forecast had been for an increase of 10,000), while the unemployment rate rose to 7.1%. This is the highest level of unemployment since May 2016, excluding the pandemic period.

It is believed that:
→ the deterioration in the labour market (primarily in manufacturing) is a consequence of the trade war with the United States;
→ the fall in employment in Canada has increased the likelihood that the Bank of Canada will resume its monetary easing campaign.

As a result, the CAD weakened sharply against other currencies. However, the depreciation against the US dollar was less pronounced, as the USD itself is under pressure from various factors.

Technical Analysis of USD/CAD

From a long-term perspective, the USD/CAD pair remains within a downward trend, highlighted by a red descending channel.

From a medium-term perspective, since July the rate has risen from the 1.3550–1.3600 support zone, forming an ascending channel (shown in blue).

Price action (indicated by arrows) shows that:
→ sellers are aggressive, pushing the price down from the upper boundary of the red channel;
→ buyers are aggressive, driving the price up from the lower boundary of the blue channel. Its median line acts as resistance.

This is compressing USD/CAD fluctuations into a pattern resembling a symmetrical narrowing triangle (shown in black), with recent overbought (1) and oversold (2) conditions on the RSI marking price reversals back into the triangle from its boundaries.

Thus, we could assume that supply and demand forces will keep USD/CAD in a state of temporary balance while awaiting key news next week:
→ 16 September – Canada CPI report;
→ 17 September – interest rate decisions from both the Bank of Canada and the Federal Reserve.

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