The US dollar to Canadian dollar (USD/CAD) pair extended its rally on Friday, trading around 1.4120 during Asian hours and remaining close to the six-month peak of 1.4140 reached earlier this week. The pair has been on a winning streak since October 30, supported by a resilient greenback recovery following a brief pullback in the previous session.
Traders are now eyeing the preliminary University of Michigan Consumer Sentiment Index later in the day for fresh direction. However, with the prolonged US government shutdown now the longest in history halting the release of key economic data such as Nonfarm Payrolls (NFP) and the unemployment rate, broader USD momentum remains vulnerable to shifts in market sentiment. Canada’s employment data, including Net Change in Employment and the Unemployment Rate, will also be closely watched for potential volatility in the pair.
The dollar’s upside remains somewhat limited as soft US labor market data continues to reinforce expectations of a Federal Reserve (Fed) rate cut in December. The latest Challenger Job Cuts report revealed that US companies eliminated more than 153,000 positions in October the highest figure for the month in over two decades prompting speculation that the Fed could move to ease policy sooner than anticipated.
Meanwhile, the prolonged US government shutdown adds another layer of uncertainty, weighing on economic activity and investor confidence. The Senate remains stalled on voting for a House-passed bill to reopen the government after multiple failed attempts, with no breakthrough in sight.
On the Canadian side, recent data painted a mixed picture. The Ivey Purchasing Managers Index (PMI) slipped to 51.7 in October from 61.6 in September, while the seasonally adjusted reading dropped to 52.4, below market expectations of 55.2. Although both figures remain above the 50-point threshold that separates expansion from contraction, the decline signals a cooling in business activity.
In testimony before Parliament’s Standing Committee on Finance, Bank of Canada (BoC) Governor Tiff Macklem expressed cautious optimism about the federal government’s new budget, which includes significant spending on infrastructure, productivity, defense, and housing. Macklem noted that the measures “are pointing in the right direction,” but emphasized that the outcome will depend on effective execution.
Technically, USD/CAD continues to trade with a bullish bias, supported by firm USD demand and relatively weaker Canadian fundamentals. However, a dovish shift in Fed expectations or stronger-than-anticipated Canadian labor data could trigger a corrective pullback. Near-term resistance lies at 1.4140, while support is seen around 1.4070, followed by 1.4000.
Overall, while the greenback’s momentum keeps USD/CAD elevated near multi-month highs, the pair’s next move will likely hinge on incoming sentiment data and central bank outlooks from both sides of the border.
