• USDCAD extends its rally for six straight days.
• Initial Jobless Claims in the United States increased less than estimates, flashing the “overheated” labor market.
• The US ISM Services PMI remained at expansionary territory, showing business resilience.
• Canada’s Trade Balance September’s surplus almost doubled August’s downward revised figures.

The USDCAD advances sharply in the North American session following Wednesday’s Federal Reserve (Fed) 75 bps rate hike, which initially was perceived as a dovish hike. Still, later the Chairman of the Fed, Jerome Powell, pushed back against expectations for a Fed pivot, reiterating the need for “higher for longer.” Also, US jobs data revealed by the US Department of Labor bear out what Powell said regarding the tight labor market. At the time of writing, the USDCAD is trading at 1.3748, above its opening price by 0.27%.

Goodish US economic data and Fed’s hangover overshadowed Canada’s Trade surplus

Wall Street continues to extend its losses after the Fed’s decision. The US Initial Jobless Claims for the week ending on October 28 were lower than expected, rising by 217K vs. 220K estimates, even though the US economy continues to weaken, according to specific economic indicators. Albeit data shows the overheated labor market, Continuing claims rose by 1.49 million in the week ended on October 22, the highest since March. If the uptrend is sustained, it could be the first sign that the labor market is easing.

In the meantime, the Institute for Supply Management (ISM) revealed the Services PMI, which rose by 54.4, below forecasts of 55.3, while Factory Orders on an MoM reading grew by 0.3%, better than the previous month but aligned with estimates.

Aside from this, the Fed’s decision caused mixed reactions from market participants. The monetary policy statement was perceived as dovish due to the Fed considering the “cumulative tightening” under its belt. But, Federal Reserve Chair Jerome Powell acknowledged that the pace of rates would be slower. He added that the peak of rates compared with September projections should be revised upward, which sent US equities tumbling, US Treasury yield rising, and the US Dollar followed suit.

In the case of the USDCAD, after hitting a daily low of 1.3547, it rallied toward its daily high at 1.3712, a whole U-turn.

The Canadian economy record's a surplus though fails to underpin the CAD

On the Canadian front, the Trade Balance for September showed a surplus bolstered by crude oil and wheat exports. The surplus rose to C$1.1 billion, below estimates of C$1.2 billion, from a downwardly revised C$550 million in August.

Regarding housing data, Canadian Building Permits for the same period plunged by 17.5%, against a contraction of 6.1%, estimated a headwind for the already battered Loonie. According to Statistics Canada, it’s the first time all surveyed components registered monthly decreases since September 2019.

What to watch

For Friday, the Canadian and US economic calendar will feature employment figures.

USDCAD Key Technical Levels