USD/CAD Price Forecast: 100-day EMA remains key hurdle

The Canadian Dollar (CAD) is currently trading sideways against the US Dollar (USD) at approximately 1.3790 after a strong Thursday, with market participants waiting for the United States Nonfarm Payrolls (NFP) data for August, due to be released at 12:30 GMT. On Thursday, USD/CAD experienced a sharp decline as the US Dollar faced selling pressure following comments from Federal Reserve (Fed) Governor Christopher Waller, who suggested some cooling in inflationary pressures.

This led to a downward revision in the Fed's interest rate expectations. Waller's speech was somewhat less hawkish, with a sentiment score of 6.1/10, slightly below the 6.3/10 benchmark, as he acknowledged "finally" emerging disinflation but indicated a willingness to raise interest rates if August inflation remains robust. Waller hinted at holding rates steady at the September 15-16 meeting if data show continued progress, but would support a "small adjustment" higher if progress reverses, suggesting a balanced reaction function that retains a tightening bias while softening immediate rate-hike expectations.

The message is data-dependent and conditionally hawkish, favoring the Dollar on upside inflation surprises but limiting aggressive repricing of near-term hikes. The FXS Fed Sentiment Index decreased by 2.06 points to 125.38, indicating a modest reduction in perceived hawkishness compared to recent communications captured by the FXS Speechtracker.

However, the index remains well above the neutral 100 level, implying that the Fed is still in a hawkish stance, indicating that markets should continue to price a significant chance of further tightening even as the tone gradually shifts toward patience. TD Securities anticipates August NFP to rebound to 95k after July's decline of 23k and warns that risks to their payrolls forecasts are hawkish, potentially resulting in an outsized positive surprise.

Jobless rate forecasts remain relatively unchanged, with the bank expecting minimal movement, with the unemployment rate likely hovering around 4.1% with balanced risks. TD Securities concludes that a slightly hawkish employment report will reinforce the Fed's focus on inflation, but it will not alone prompt hikes. In the daily chart, USD/CAD trades at 1.3791, maintaining a bearish near-term outlook as it remains below the 100-day Simple Moving Average (SMA) of 1.3920.

The pair's inability to reclaim this medium-term gauge suggests rallies are currently limited, while the Relative Strength Index (RSI) at around 38 sits in bearish territory but not yet in oversold territory, indicating lingering downside pressure rather than exhaustion. On the upside, the 100-day SMA at 1.3920 is the primary resistance that bulls need to overcome to alleviate the current downside bias and pave the way for a more substantial recovery.

On the downside, the pair could enter a fresh downtrend if it fails to hold the August 21 low at 1.3732. Nonfarm Payrolls (NFP) are a part of the US Bureau of Labor Statistics monthly jobs report, specifically measuring the change in the number of employed people in the US during the previous month, excluding the farming industry.

NFP can influence the Federal Reserve's decisions by providing insight into the Fed's success in meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure indicates more people are in employment, earning more money, and thus likely spending more. Conversely, a relatively low NFP result may suggest people are struggling to find work.

The Fed typically raises interest rates to combat high inflation triggered by low unemployment, and lowers them to stimulate a stagnant labor market. NFPs impact the US Dollar by affecting inflation, monetary policy expectations, and interest rates. Higher NFP usually suggests the Federal Reserve will be more stringent in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively correlated with the price of Gold, meaning a higher-than-expected NFP figure could depress Gold prices, while the converse is also true. Higher NFP generally has a positive effect on the value of the USD, and since most major commodities are priced in US Dollars, higher interest rates (often aided by higher NFPs) can reduce the attractiveness of Gold as an investment compared to holding cash where the money will at least earn interest.

NFP is just one component within a larger jobs report, and it can be overshadowed by other components such as Average Weekly Earnings, Participation Rate, and Average Weekly Hours. However, in rare events like the "Great Resignation" or the Global Financial Crisis, these components can significantly influence market reactions. Sagar Dua is involved in financial markets since his college days, starting his market training with chart analysis while pursuing post-graduation in Commerce in 2014.