Buying USDCAD amid Canada’s weak economic performance

At the moment, USDCAD is flirting with 1.42000, slightly retreating from an 18-month peak of 1.43000. Nevertheless, this local pullback has no influence on the broader fundamental picture, which continues to favor the US dollar and hints at the pair’s potential recovery.

But let’s focus on what’s happening in Canada. The latest labor market data was a real downer and the loonie’s key headwind. Last month saw an unexpected loss of 68,300 jobs, following a decline of 41,700 in August. Meanwhile, the unemployment rate rose from 6.4% to 6.5% in September. Such disappointing results for the second consecutive month have heightened market concerns over a slowdown in Canada’s economic activity. A drop in employment could weigh on consumer spending and domestic demand, further limiting the prospects of a stronger loonie.

Sadly, that’s not all. The Canadian currency is also burdened by the central bank’s monetary policy. Sluggish labor market data forced investors to revise their forecasts regarding the regulator’s next moves, pricing in a lower likelihood of an interest rate hike at the upcoming meeting. This is not good news for the loonie, as the monetary divergence between the Bank of Canada (BoC) and the Federal Reserve (Fed) remains significant—2.25% versus a range of 3.75%–4.00%. Under these circumstances, USD-denominated assets with fixed income look far more attractive to traders. Consequently, demand for the greenback stays strong. A further deterioration in Canada’s macroeconomic performance could boost expectations of a softer policy stance from the BoC, putting additional pressure on the CAD.

The USDCAD technical setup maintains an upward bias. After hitting a local resistance level at 1.43000, the pair entered a correction and approached the important 1.42000 support. Holding this threshold could pave the way for a resumption of bullish momentum, followed by a break above the local high. The next upside target could be the 1.45000 resistance.

The overall recommendation is to buy USDCAD at the current price of 1.42000, aiming for 1.45000 within a month. For better risk management, place a Stop Loss order at 1.39500.