USDCAD and Thursday's employment numbers.
On Wednesday, the Canadian central bank raised the rates by 50 basis points, as was widely expected. This is while the Reserve Bank of Australia already started slowing the pace of rate hikes and raised the rates by only 25 basis points in its Tuesday Monetary policy meeting and interest rate decision.
While BoC continues its hawkish policies, inflation and Core inflation have been reducing in recent months. With a 50 basis points rate hike of BoC, the prime rates rose to 4.25%, the highest level since December 2007. Currently, headline and core inflations are 6.9% and 5.0%, respectively. With increasing the rates in the seventh straight month, BoC also reduces the size of its balance sheet to ease inflationary pressures.
Like the Bank of England, BoC expects a recession, but just for the last quarter of 2022 and the first half of 2023; however, it is still highlighting its pessimistic stance. While these policies help the Canadian dollar gets strengthened in the short term, Thursday's US employment numbers can add pressure on the US dollar.
According to the US Bureau of Labor Statistics, the number of Americans claiming jobless benefits continued to rise last week, indicating that the labor market is cooling. Initial jobless claims rose to 230,000 in the week ended December second, up from 226,000 the week before. With these numbers now, the average of four weeks is 230,000, the highest level since September. Also, the continuing jobless claims published with one week's delay rose unexpectedly to 1.671 million, the highest level since January.
However, even if the labor market is cooling, it is still strong enough, as there are still over 1.7 vacancies for every unemployed person. Therefore, they are no such weak data that could change the policymakers' idea for continuing the hawkish policies.
In short, while the Canadian dollar gets more vital in the short-term, looking at the mid-term timeframes, conditions continue to weigh heavily in favor of the US dollar, which can be confirmed in technical charts.
