USD/CAD: US Labor Market Releases, Risk Sentiment to Support the Loonie

The fiscal cliff resolution served from Pennsylvania Avenue did much to bolster the global financial markets to start of the new year. Though some traders are starting to take in their gains, there seems to be more value to hold on to the bullish prospects of riskier investments. The US dollar is anticipated to still bow down to the Canadian currency, albeit with the latter expected to have limited gains in the ensuing exchanges.

The agreement boosts taxes on the wealthiest Americans, while preserving tax cuts for most American households. While effectively averting a looming fiscal cliff that had threatened to plunge the nation back into recession, the bill also extends expiring jobless benefits, prevents cuts in Medicare reimbursements to doctors and delays for two months billions of dollars in across-the-board spending cuts in defense and domestic programs.

“General risk sentiment is improving,” said David Watt, chief economist at HSBC Holdings Plc in Toronto. “The fiscal deal in the US, that’s been holding markets back, so the fact they got an agreement basically could take a source of uncertainty away from markets.”

Moreover, economic data scheduled for release today has promising forecasts for the US labor market. After a lackluster 118,000 release for the month of November, December ADP Non-Farm Employment Change is estimated to reach 134,000. Also, the labor department is anticipated to post a fourth straight week of Jobless Claims with less than 365,000 filings. Analysts key in a 356,000 figure for the last week of 2012, which could bring the December average to less than 353,000. These labor market figures are deemed to support risk sentiment in the markets, and bring in gains for the Loonie.

Darren Richardson, a Senior Corporate Dealer at CanadianForex Ltd, argues though that the USDCAD currency pair could find support at the 98.25 level, saying that “we’ve got a lot of technical support there, previous highs from October, December was at 98.25 and that should hold in for today.”

Nevertheless, a sell bias is anticipated for the USDCAD. Be on the watch for probable technical price corrections, however.