Key points:
The loonie strengthened to a one-month high against its U.S. counterpart on Thursday. This rise occurred as the greenback posted broad-based declines ahead of domestic jobs data, which could influence expectations for further interest-rate cuts by the Bank of Canada.
Picture: Loonie on the rise, trading at 1.3695. Download the VT Markets app.
The Loonie (USDCAD) traded 0.2% higher at 1.3609 to the U.S. dollar, or 73.48 U.S. cents. This marks its strongest level since June 3, despite soft business activity data.
Canada’s services economy shifted back into contraction in June. A decline in new business impacted the sector’s performance even as inflation pressures cooled, according to S&P Global Canada services PMI data.
The Canadian employment report, due on Friday, is expected to show the economy adding 22,500 jobs in June. However, it is also anticipated that the unemployment rate will rise to 6.3% from 6.2% in May.
Investors see a roughly 40% chance that the Bank of Canada will cut rates at its next policy meeting on July 24. Last month, the BoC became the first G7 central bank to ease policy, lowering its benchmark rate by 25 basis points to 4.75%.
The U.S. dollar (DXY) lost ground against a basket of major currencies after recent weak U.S. economic data raised prospects that the Federal Reserve would cut interest rates as soon as September. U.S. markets were closed for the Independence Day holiday.
The North American price of oil (CL1!), one of Canada’s major exports, remained nearly unchanged at $83.91 a barrel, holding near its highest level in more than one month.
Canadian bond yields rose across the curve. The 10-year yield increased by 3.9 basis points to 3.605%, moving closer to the one-month high it touched on Tuesday at 3.659%.
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The current trends show cautious optimism for the Canadian dollar as it benefits from a weaker U.S. dollar and anticipations of domestic job growth. However, the potential rise in the unemployment rate and the deteriorating services sector may put pressure on the Bank of Canada to consider further rate cuts.
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