In September, Canada’s job market showcased impressive strength, significantly outperforming its U.S. counterpart. Canada reported the addition of 63,800 jobs, a figure more than triple the initial expectations. What’s more, Canadian wages experienced robust growth, rising by 5.3%, surpassing the anticipated 5.1%, and marking an increase from the prior 5.2%.
This stellar performance in Canada’s labor market has caused an uptick in the odds of a Bank of Canada (BOC) rate hike, with the likelihood now standing at 41.6% for the upcoming October 25th meeting. While much attention was focused on the U.S. Nonfarm Payrolls (NFP) report, Canada quietly emerged as the standout performer, showcasing both strong job creation and wage growth.
This economic divergence between the two North American neighbors has prompted FX markets to speculate that the BOC may be more inclined to raise rates than the U.S. Federal Reserve. Consequently, the Canadian dollar has surged against its U.S. counterpart, and further gains could be on the horizon if financial conditions continue to tighten, potentially reducing the need for Fed rate hikes.
The recent stability in crude oil prices has also contributed to the Canadian dollar’s strength, as oil markets anticipate a floor for prices. The U.S. economy’s resilience and the potential for a major oil price correction could see WTI crude eyeing the $80 per barrel level. However, this final push lower in oil prices might be a temporary setback before a more substantial bottom is established.
Amidst these developments, Exxon’s acquisition of Pioneer serves as a reminder of the energy sector’s ongoing potential, with further consolidation expected as financial conditions become increasingly stringent. The tight physical oil markets are likely to keep energy market consolidation a dominant theme.
In terms of technical analysis, the USD/CAD daily chart indicates a recent key top formation, with potential bearish momentum targeting support at the 50-day Simple Moving Average (SMA) around 1.3523. On the upside, the 1.3800 level remains a significant price barrier to watch. This information serves as general market analysis and is not intended as investment advice.