The US dollar edged higher against the Canadian dollar on Thursday, with USD/CAD holding near 1.3850 in European trading, as markets weighed rising geopolitical tensions and awaited key Canadian labor data due Friday. The pair has stayed above its 20‑day exponential moving average (EMA) at 1.3827, keeping a slight bullish bias intact.
Dollar gains amid geopolitical tension
The US Dollar Index added 0.1% to 99.10, extending a modest rebound after three straight sessions of losses. The move came as traders tracked developments around planned talks between the United States and Iran.
Tehran confirmed a delegation will travel to Pakistan for preliminary discussions on a 10‑point proposal, following comments from Iran’s parliament speaker, Mohammad Bagher Qalibaf, who accused Washington of breaching three clauses of the peace framework. His remarks have cast doubt over the durability of the recently announced ceasefire.
Israeli operations against Iran‑backed groups in Lebanon have continued despite the truce, keeping geopolitical risk elevated and supporting demand for the US dollar as a perceived safe haven.
Canadian jobs report in focus
Attention is now turning to Canada’s March labor report, scheduled for release at 12:30 GMT on Friday. Consensus forecasts point to a 15,000 increase in employment after an 83,900 job loss in February, according to Statistics Canada.
The net change in employment figure, released monthly, tracks how many people have gained or lost jobs and is closely tied to consumer spending and broader economic activity. The upcoming print carries added importance because February’s sharp decline was largely attributed to temporary public‑sector strikes. A weak rebound, or another negative surprise, could signal that labor market softness is broadening beyond one‑off factors.
Analysts note that a result comfortably above the 15,000 consensus would be needed to restore confidence in Canada’s labor outlook.
Technical picture for USD/CAD
From a technical standpoint, near‑term momentum for USD/CAD remains mildly positive. The pair is trading above its 20‑day EMA at 1.3827, while the relative strength index (RSI) sits around 57, suggesting modest upside traction without tipping into overbought territory.
If the pair falls below the 20‑day EMA, the next support zone is seen near 1.3750, aligning with the March 3 peak. As long as price action holds above the short‑term moving average, a push toward the 1.3950 area remains possible.
Market participants expect volatility to increase around Friday’s data release and in reaction to any headlines emerging from the US‑Iran discussions in Pakistan. The current technical setup implies that a significant surprise in either the jobs report or the diplomatic track could trigger a swift move away from the 1.3850 region.
Inflation backdrop and Fed outlook
Recent US data have added another layer to the dollar story. Core producer prices rose 0.3% last month, signaling persistent inflation pressures. That trend keeps the Federal Reserve on alert and supports expectations that US policy rates may stay higher for longer, reinforcing underlying support for the greenback.
Historically, the combination of heightened geopolitical strain and sticky inflation has tended to favor the US dollar, as traders gravitate toward safer, yield‑supportive assets during periods of uncertainty.
Oil strength offers support to Canadian dollar
Offsetting some of the US dollar’s safe‑haven bid, oil prices have firmed. West Texas Intermediate (WTI) crude, a key Canadian export benchmark, has climbed 2.8% over the last five sessions to around $91.20 a barrel, helped by the same Middle East tensions that have buoyed the dollar.
Sustained strength in energy prices typically underpins the Canadian dollar by improving Canada’s terms of trade and supporting government revenues and corporate earnings in the energy sector. This dynamic could partially counterbalance the US dollar’s geopolitical and rate‑driven advantages.
Outlook for USD/CAD
Traders are now watching whether risk aversion continues to dominate trading, keeping demand tilted toward the US dollar, or whether a strong Canadian employment report shifts the narrative back toward domestic fundamentals in North America.
With USD/CAD trading near 1.3850 and key event risks clustered around Friday’s labor data and the Pakistan talks, the outcome of these developments is likely to shape the pair’s directional tone in the coming weeks.
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