Canadian Dollar gains as weaker US jobs data pressure US Dollar

USD/CAD falls to 1.4180 on Thursday, down 0.26% on the day after dropping to 1.4150, its lowest level in more than a week, following a much weaker-than-expected US employment report.

The Bureau of Labor Statistics (BLS) reported that the US economy added 57K Nonfarm Payrolls (NFP) in June, well below the market expectation of 110K. May's figure was also revised lower to 129K from 172K initially estimated, while April payrolls were revised down to 148K from 179K, resulting in a combined downward revision of 74K jobs over the two previous months.

Despite the sharp slowdown in hiring, the Unemployment Rate unexpectedly edged lower to 4.2% from 4.3%, while the Labor Force Participation Rate declined to 61.5% from 61.8%. Meanwhile, Average Hourly Earnings rose 3.5% YoY, in line with market expectations, suggesting wage pressures remain relatively firm.

Markets are nevertheless focusing on the weak headline payroll figures, as the US Dollar (USD) remains under pressure after the data prompted investors to scale back expectations for Federal Reserve (Fed) interest rate hikes later this year. According to the CME FedWatch tool, the chances for two rate hikes this year fell to 27.8%, compared to 31.9% in the previous day.

In Canada, the S&P Global Manufacturing Purchasing Managers Index (PMI) edged up to 53 in June from 52.9 in May, pointing to a modest improvement in manufacturing activity. However, the upbeat data had a limited impact on the Canadian Dollar (CAD), with traders remaining focused on the sharp decline in the US Dollar following the US jobs report. 

However, the USD/CAD downside potential may be limited, as the Loonie continues to face pressure from falling Crude Oil prices. The decline in Oil is driven by the resumption of shipping traffic through the Strait of Hormuz, easing concerns over a prolonged supply disruption, while diplomatic progress between Washington and Tehran has also helped improve sentiment in energy markets.