The Canadian dollar has been underperforming against the US dollar over the last couple of days as investors are waiting for March’s employment report on Friday at 12:30 GMT. It’s noteworthy that the currency has been moving lower after policymakers pointed at the latest monetary policy meeting that the labor market is a long way from recovery, with employment still below pre-covid levels.
Unemployment rate expected to tick lower
In the previous release, the unemployment rate in Canada decreased to 8.2% in February, reaching the lowest level since March 2020. The consensus for March is for the unemployment rate to fall to 8.0%, while the economy is expected to have added 100.0K jobs following a contraction of 259.2K jobs in February. In the case the data show a larger improvement, with wage growth also picking up steam, the loonie could recover some losses against the greenback.
On the pandemic front, two million vaccines will arrive this week to the country to combat the spread of the more contagious Covid variants.
BoC leaves monetary policy unchanged
As widely expected, the Bank of Canada (BoC) left its policy unchanged last month. Policymakers were more upbeat about the economic outlook but left interest rates and asset purchases steady until the inflation target of 2% is achieved. Specifically, GDP growth is forecast to be positive in the first quarter of 2021 despite the negative prediction back in January. Moreover, the CPI inflation index is likely to move within the 1-3% target band in the next few months, reflecting the base-year effects in some goods and services at the outset of the crisis a year ago. The next policy announcement is scheduled for April 21.
Dollar/loonie gains some ground
Turning to FX markets, dollar/loonie has been gradually rising over the last couple of days, sustaining the rebound off 1.2500. The price jumped above 1.2600 for the first time in a week as traders look for more upside movements in the next sessions. A stronger-than-expected jobs report on Friday could drive dollar/loonie towards the immediate support of 1.2500, while lower the more-than-a-three-year low of 1.2365 could be the next target. Steeper decreases could see the test of the 1.2250 barrier, achieved in January 2018.
If the employment report shows a weaker jobs growth and a higher unemployment rate, the pair could crawl up to test the 1.2645 immediate resistance, while additional advances from here could stabilize around the 1.2750 hurdle. If buying interest persists, the 23.6% Fibonacci retracement level of the down leg from 1.4668 to 1.2365 at 1.2907 could next come in the spotlight ahead of the 1.2950 number and the 200-day simple moving average (SMA) at 1.2982.
Furthermore, oil prices could not help the commodity-dependent loonie gain ground over the past few days as the WTI crude price was volatile within a horizontal move following the close below $60/barrel.
For the Canadian dollar to move significantly higher, investors will probably want to see more evidence that there is a sustained economic recovery not just in Canada but also in its largest trading partner, the United States.