USD/CAD Rebounds Firmly To Near 1.3360 Due To Downbeat Canadian Employment Report

The USD/CAD pair has recovered sharply to near 1.3360 as Statistics Canada has reported poor Employment data (May). The Canadian labor market has posted a decline in payroll figures by 17.3K while the street anticipated an additional 23.2K. Last month the Canadian economy added 41.4K jobs. The Unemployment Rate has increased sharply to 5.2% vs. the estimates of 5.1% and the former release of 5.0%.

Additionally, annual Average Hourly Earnings have softened to 5.1% from the prior release of 5.2%. This would also ease some heat in resilient consumer spending.

Considering the weakness in the Canadian Employment report, the Bank of Canada (BoC) might reconsider its intention to hike interest rates further.

Investors should note that the BoC surprisingly raised interest rates by 25 basis points (bps) to 4.75% on Wednesday. BoC Governor Tiff Macklem raised interest rates despite the consistent softening of Canada’s inflation. Consumer Price Index (CPI) in Canada was 4.4% in April. BoC Macklem said in the monetary policy statement that inflationary pressures could turn sticky at these levels consumer spending is resilient. Also, doors remained open for further interest rate hikes.

S&P500 futures have turned positive after recovering their losses before the New York session, portraying a risk-on market mood. Lowering the chances of one more interest rate hike from the Federal Reserve (Fed) has improved the appeal for risk-perceived assets.

The US Dollar Index (DXY) has retreated after failing to extend its recovery to nearly 103.60. Although expectations for a neutral interest rate policy stance by the Fed for the June meeting are skyrocketing, the release of the US CPI (May) data will be keenly watched and will release next week.

As per the preliminary report, headline inflation is expected to soften sharply amid declining oil prices, while core inflation excluding oil and food prices, could remain persistent.

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