By Ketki Saxena
Investing.com – The Canadian dollar weakened against its US counterpart on Friday, following a short-lived rally after a better than expected Canadian employment report.
The Canadian economy added 37,300 jobs in January, compared to expectations for a gain of 15,000 jobs. The unemployment rate ticked lower to 5.7%, down from 5.8% in December.
However, Douglas Porter, chief economist and managing director of economics at BMO (TSX:BMO) warned that “Beyond the shiny headlines, the details were underwhelming”.
Porter points out that the drop in employment is tied to a declining participation rate, and that most of the job gains were in part time or public service categories.
On the whole, however “The Bank of Canada is likely to view this report as further reason for a patient policy stance.”
Market swap pricing currently indicates 75 bps of expected easing from the BoC in 2024, and 100 bps expected from the Fed.
Analysts at Scotiabank (TSX:BNS) note that “The Fed retains a small policy rate premium over Canada this year, in other words, but we expect policy rate parity in 2025.”
They expect “Term yield differentials can continue to compress slowly in the months ahead, extending the CAD some support, even if correlations currently suggest spreads have little influence over the CAD.”
On a technical level for the pair, analysts at FXStreet note, “The USD/CAD continues to trade into the 200-day Simple Moving Average (SMA) near 1.3475, and bidders will be looking to drive the pair back into the last meaningful swing high at 1.3900 last November.”
“On the low side, sellers will be looking for a return to December’s bottom bids near 1.3200.”