The Canadian dollar edged lower against its U.S. counterpart on Wednesday as stronger-than-expected U.S. jobs data reduced expectations for Federal Reserve interest rate cuts, offsetting higher oil prices.
The loonie was trading 0.1% lower at 1.3560 per U.S. dollar, or 73.75 U.S. cents, after moving in a range of 1.3505 to 1.3618.
U.S. job growth unexpectedly accelerated in January and the unemployment rate fell to 4.3%, signs of labor market stability that could give the Fed room to keep interest rates unchanged for some time while policymakers monitor inflation.
“The unexpected strength in the monthly data to start the year caught investors off guard, sparking a bounce in both the U.S. dollar and the Treasury yield curve,” said Kevin Ford, FX & macro strategist at Convera.
“Recent downward momentum (for USD-CAD) appears effectively capped by this short-term shift in sentiment, as markets have pushed back the timeline for the Federal Reserve’s next move.”
The Bank of Canada, like the Fed, left its benchmark interest rate on hold last month. Governing Council members said threats to the independence of the Fed had added to the turbulence and uncertainty in the world, according to the summary of deliberations at their January meeting.
The scheduled review this year of the United States-Mexico-Canada Agreement, a continental trade pact, is another potential source of uncertainty. U.S. President Donald Trump is privately musing about exiting the pact, Bloomberg News reported.
The report nudged the loonie a little lower but “the president’s misgivings about the trade deal he negotiated is not exactly new news,” Shaun Osborne and Eric Theoret, strategists at Scotiabank, said in a note.
The price of oil, one of Canada’s major exports, settled 1.05% higher at $64.63 a barrel as investors worried about escalating tensions between the U.S. and Iran.
Canadian bond yields moved lower across a flatter curve. The 10-year was down 2.4 basis points at 3.338%, while the gap between it and the equivalent U.S. rate widened by 5.5 basis points to 83.8 basis points in favor of the U.S. note.