USD/CAD Plummets as US Labour Market Data Fails to Impress

The USD/CAD exchange rate has broken down to its lowest level since early June as economic data divergence continues. The recent US labour market data for July was vastly divergent from Canada's, with a soggy US non-farm payrolls report falling by 23,000 against expectations for an 80,000 increase. In contrast, Canada's employment jumped by 75,100, its highest level in two years.

The trend of soft economic data on the US side and stronger data on the Canadian side has been building over recent months, with the USD/CAD pair moving lower as a result. The relationship between the pair and market pricing for the Fed out to its June meeting next year has also been consistent, with the amount of tightening priced over that period being whittled away.

The upcoming US inflation reports on Wednesday and Thursday will be crucial in determining whether Fed rate hike bets continue to dwindle. A relatively soft set of inflation figures is expected, which would further reduce expectations for a September rate hike.