The sky changes overnight! The central bank's turn and trade reversal, the game behind the Canadian dollar's surge

XM Foreign Exchange APP News - On Monday (December 8) during the Asia-Europe time period, the US dollar against the Canadian dollar has continued to show a weak pattern recently. The exchange rate has not rebounded significantly in the face of last Friday's huge decline, and has fluctuated around the 1.3800 mark. The market is highly focused on the fact that the US dollar fell 0.96% against the Canadian dollar in one day last Friday. The exchange rate trend closed a huge negative line, approaching the 11-week low area, refreshing the lowest level since September 25. The direct cause of this trend is Canada's November labor market report released last Friday - the data far exceeded market expectations, significantly boosting market sentiment for the Canadian dollar. The report shows that the Canadian economy added 53,600 jobs in November, significantly reversing the pessimistic situation that economists had expected to lay off 5,000 people, and achieving employment growth for the third consecutive month (66,600 new jobs in October). The unemployment rate exceeded expectations, unexpectedly falling to 6.5% from 6.9% in October. Not only was it better than market forecasts of rising to 7.0%, it also set the largest monthly decline since the end of 2021. Expectations of a rate cut by the Federal Reserve weigh on the U.S. dollar, while U.S.-Canada trade progress supports the Canadian dollar. In sharp contrast to the strong support for the Canadian dollar, the U.S. dollar index traded cautiously ahead of the release of the Federal Reserve policy statement. In view of the fact that the personal consumption expenditures (PCE) reissued by the United States on Friday night in September were slightly lower than expected, dispelling some of the Federal Reserve's concerns about inflation and paving the way for interest rate cuts. The data showed that after inflation adjustment, consumption in September nearly stagnated, the previous value was revised down to 0.2%, and the core PCE was 2.8% year-on-year. Inflation cooling is uneven but the pressure is marginally alleviated. During the same period, inflation-adjusted disposable income stagnated for two consecutive months, with nominal wages rising by 0.4%; cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cn.xmtdhf.cnmodity spending in September saw the largest decline since May, with the middle class declining due to employment and forecasts.Calculate the pressure and switch to discount channels to purchase goods. In addition, although the Michigan consumer confidence index rose to 53.3 in December, exceeding expectations of 52, inflation expectations have cooled (4.1% in the next year and 3.2% in five years) but still create conditions for the Federal Reserve to cut interest rates. For the US dollar against the Canadian dollar, the short-term trend will continue to be subject to the game of policy expectations of the two major central banks, as well as the progress of the US-Canada trade negotiations. The offensive and defensive battle at the 1.3800 mark will become the focus of market attention. If subsequent U.S. economic data show weakness and the Federal Reserve cuts interest rates, the exchange rate may fall further; while rising trade uncertainty may provide periodic support for the exchange rate. Wages and participation rates performed solidly, and the Bank of Canada's easing week may announce the end of the job market. The solid trend of the labor market is further reflected in the salary level: Canada's average hourly earnings in November increased by 4.0% year-on-year, the same growth rate as the same period last year, fully demonstrating the resilience of the labor market; only the labor participation rate fell slightly from 65.3% to 65.1%, which has limited impact on the overall positive situation. This set of strong data directly weakened market expectations for an interest rate cut by the Bank of Canada at its policy meeting on December 10. The market currently generally expects the bank to maintain its benchmark interest rate unchanged at 2.25%. Looking back at the October resolution, the Bank of Canada cut interest rates by 25 basis points and hinted that this adjustment may mark the end of the easing cycle, emphasizing that the current policy stance is "at an appropriate level" for the economy. This employment data reversely verifies the Bank of Canada's statement. At the same time, many economists surveyed agreed that the bank will keep interest rates stable next week, and more than half of them expect interest rates to remain at current levels at least until 2027. The U.S. dollar's decline against the Canadian dollar fell far more than the U.S. dollar index, as the market made aggressive bets on optimistic improvements in trade relations between the U.S., Canada and Mexico and the hawkish expectation that the Bank of Canada would keep interest rates unchanged. The long negative line of the exchange rate represents a strong signal of trend reversal. The current pressure is at 1.3886, and the support is at the integer mark of 1.3800 and 1.3700. (Daily overlay chart of the US dollar against the Canadian dollar and the US dollar index, source: Yihuitong) At 16:08 Beijing time, the US dollar against the Canadian dollar was currently trading at 1.3814/15.

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