USD/CAD Range-Bound Above Mid-1.3600

USD/CAD showed resilience below the 200-hour simple moving average (SMA) in Asian trading on Friday, but it seemed difficult to attract significant buying. Investors are focusing on the US monthly employment data before making new directional bets, and USD/CAD rose to around 1.3670, maintaining a mild bullish bias.

The heavyweight data non-farm payrolls report (NFP) is expected to show that the US economy added 185,000 non-farm jobs in May, compared with 175,000 in the previous value, and the unemployment rate remained stable at 3.9%. This will, together with the average hourly wage, affect inflation trends and the Fed’s future policy decisions, thereby driving demand for the US dollar and providing new directional momentum for USD/CAD.

Before the key data risk came, market participants had been believing that the Federal Reserve (Fed) was more likely to start cutting interest rates in September after signs of weakness in the US economy. This in turn suppressed US Treasury yields and the US dollar. In addition, the strong rebound in crude oil prices this week also supported the commodity-linked Canadian dollar and suppressed USD/CAD.

Meanwhile, the Bank of Canada cut its benchmark interest rate for the first time in four years from a more than two-decade high, expressing concerns about slowing economic growth. The Bank of Canada also acknowledged an improvement in underlying inflation, sparking speculation of another rate cut next month. This could limit the upside for the Canadian dollar (CAD) and boost the USD/CAD pair.

The mixed fundamentals above further remind aggressive traders to proceed with caution, suggesting that the USD/CAD pair is more likely to extend its range-bound trading on the last day of the week. That said, USD/CAD is still expected to post a modest weekly gain, but it remains in the range it has been in since early May.

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