The USD/CAD pair encountered selling pressure after experiencing a rapid retreat towards the significant resistance level of 1.3300 during the European session. The Canadian Dollar (CAD) is gaining momentum as the short-lived recovery of the US Dollar Index (DXY) gives way, while expectations of further rate hikes by the Bank of Canada (BoC) strengthen the Loonie.
In London, S&P500 futures extended their losses, following negative indications observed on Friday due to optimistic wage data. US equities underwent a sell-off as robust wage figures increased the likelihood of another interest rate hike by the Federal Reserve (Fed) in July. The prevailing market sentiment leans toward risk aversion, driven by concerns about a potential recession in the United States.
The US Dollar Index (DXY) has retreated after encountering significant resistance near 102.50. Continued pressure may lead to a drop in the USD Index towards the immediate support level of 102.20. Following the release of US Nonfarm Payrolls (NFP) data, investors have shifted their attention to the upcoming Consumer Price Index (CPI) data, scheduled for Wednesday at 12:30 GMT.
According to consensus estimates, the monthly headline CPI is expected to increase at a faster pace of 0.3%, compared to the previous rate of 0.1%. The annualized headline inflation is predicted to moderate to 3.1%, contrasting with the previous release of 4.0%.
Meanwhile, the Canadian Dollar’s performance will be influenced by the upcoming interest rate decision by the Bank of Canada (BoC). BoC Governor Tiff Macklem is expected to raise interest rates to 5% as labor market data has exhibited remarkable resilience. It is worth noting that the BoC has already implemented interest rate hikes, bringing the rates to 4.75%.
According to Statistics Canada, there was an addition of 59.9K employees, surpassing the estimated figure of 20K. In May, the Canadian labor force experienced a decline of 17.3K employees. The Unemployment Rate rose to 5.4% from the estimated 5.3% and the previous release of 5.2%. Investors should be aware that BoC Governor Tiff Macklem has already increased interest rates to 4.75%.
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