USD/CAD holds below 1.3280 ahead of US ADP Employment Change

USD/CAD loses traction but remains well supported above 1.3260.
Fitch lowered the United States government’s credit rating from AAA to AA+ on Tuesday. 
The US ISM Manufacturing PMI rose to 46.4 from 46.0 in July, below expectations of 46.8.
Canada’s manufacturing sector declined for the third consecutive month in July.
The Canadian Employment Change and Nonfarm Payrolls will be the week’s highlights for USD/CAD.

The USD/CAD pair loses ground after approaching the 1.3300 mark and holds above 1.3275 during the early Asian session on Wednesday. The major pair is on track for its sixth weekly close above the 1.3200 area. Meanwhile, the US Dollar Index (DXY), a measure of the value of the Greenback against six other major currencies, hovers around 102.12 following the mixed economic reading and the headlines surrounding the US rating cut.

Fitch lowered the United States government’s credit rating from AAA to AA+ on Tuesday. The leading rating agency cites an anticipated fiscal deterioration over the next three years and a high general government debt level as the primary reasons for this radical action. 

Regarding the US data, the US ISM Manufacturing PMI rose to 46.4 from 46.0 in July but fell short of expectations of 46.8. The report also indicated that the New Orders Index increased from 45.6 to 47.3, while the Employment Index decreased from 48.1 to 44.4. Finally, the Prices Paid Index increased to 42.6 from 41.8.

Additionally, the US Bureau of Labour Statistics (BLS) reported on Tuesday that JOLTS Job Openings totaled 9.58 million in June. This reading followed May’s 9.82 million openings and was below the 9.62 million market consensus. The more robust data could convince the Federal Reserve (Fed) to keep its hawkish stance. This may lift the US Dollar and act as a tailwind for USD/CAD.

On the Canadian Dollar front, Canada’s manufacturing sector declined for the third consecutive month in July. The S&P Global Canada Manufacturing PMI rose to 49.6. This figure followed the previous month’s 48.8 and was better than expected at 48.9. A reading below 50 indicates sector contraction. It has been below that level since May.

The Bank of Canada (BoC) policymakers indicated they are still likely to further hike their benchmark interest rate after raising it by 25 basis points (bps) to 5.0% on July 12. BoC Governor Tiff Macklem disclosed that future policy decisions would be based on incoming data and the inflation outlook. However, market participants anticipated that the Bank of Canada (BoC) would not deem it necessary to increase interest rates further this year.

However, the Canadian Employment Change on Friday could offer hints into the strength of domestic activity and the direction of the BoC’s monetary policy. Economists forecast that the Canadian economy will create 21,100 jobs in July. 

That said, an increase in oil prices has bolstered the Loonie and helped offset a slump in the Canadian economy. Higher crude prices benefit the Canadian Dollar, since Canada is the largest oil exporter to the United States.

Market players await the US ADP employment data later in the American session. Also, the US weekly Jobless Claims, Unit Labour Cost and ISM Service PMI. On Friday, attention will shift to Canadian Employment Change and Nonfarm payrolls. The US economy is expected to have created 180,000 jobs. The data will be critical for determining a clear movement for the USD/CAD pair.

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