The Canadian economy is in a period of a great uncertainty. It’s not too surprising therefore that the Canadian dollar has been moving sideways against the US dollar over the last two months. Investors are waiting for the employment report on Friday at 1230 GMT for fresh clues on the economy. Stronger figures in employment may provide some relief to the domestic currency, helping it surpass again the descending trend line.
Unemployment rate is expected to tick even lower
In the previous release, the unemployment rate in Canada decreased to 9.0% in September from 10.2% before. After the strong increase in the unemployment rate of 13.7% in May, the jobless rate has been on a declining route over the last four months. Consensus for the unemployment rate is for it to fall to 8.8%, which is a six-month low, while the net change in employment is expected to show that the economy added 100.0K jobs compared to 378.2K jobs in August.
However, even though it continues to gradually recover, employment is still well-below pre-pandemic levels. There could be some gains ahead for the loonie if wage growth and employment numbers show further improvement in the labour market.
Newly confirmed Covid-19 cases reported by provinces across Canada have brought the national total to 247,000 cases and over 10,300 deaths.
Interest rate held steady
In the latest policy meeting on October 28, the Bank of Canada left its interest rate unchanged as widely expected. The Committee said it is maintaining its extraordinary forward guidance, reinforced, and supplemented by its quantitative easing program. Policymakers anticipated an economic contraction of about 5.5% in 2020, to then grow by almost 4% on average in 2021 and 2022. Also, the Committee referred that growth will likely be choppy as domestic demand is influenced by the evolution of the virus and its impact on consumer and business confidence. Policymakers added that they will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved.
Latest update on US election
Canadians may watch the drama unfold in the US elections, but beyond cheering for the candidate they like best, there could be far-reaching impacts on the economy, for families travelling between the countries, and even on social fabric.
Democrat Joe Biden moved closer to victory in the U.S. presidential race as election officials tallied votes in the handful of states that will determine the outcome and protesters took to the streets. President Donald Trump has alleged fraud and filed lawsuits, calling for recounts in a race yet to be decided two days after polls closed.
Dollar/loonie moving horizontally since September
Technically, the Canadian dollar has been gaining some ground against the US dollar over the last seven months. A stronger-than-predicted jobs report on Friday could drive USDCAD lower to test the immediate support at 1.3095 and then the 1.2993-1.2950 area.
Alternatively, if the employment report shows jobs growth and/or the unemployment rate shifts lower, the pair could return to the 1.3420 resistance, while more advances could revisit the 200-day simple moving average at 1.3550. Above that, the 1.3715 resistance could come in focus.
Looking at the short-term timeframe, dollar/loonie has been in a neutral mode over the two months with an attempt to break the downtrend line to the upside in the preceding week.
For the Canadian dollar to move strongly higher, investors will probably want to see more evidence that there is a sustained recovery and whether additional stimulus is on the cards, not just in Canada but also in its largest trading partner, the United States.
