The Canadian dollar has gained momentum this week, outperforming the US dollar as renewed expectations of a more hawkish Bank of Canada and firmer oil prices provide support, according to ING Economics in a note Friday.
However, ING said it expects the uncertainty over the U.S-Mexico-Canada Agreement on trade, or USMCA, to resurface gradually through the third quarter, limiting further Canadian dollar gains. As a result, the bank doesn't predict USD/CAD to sustain a move below 1.40 over the coming months.
Canada's June Labour Force Survey (LFS) is due out at 8:30 a.m. ET Friday, with the consensus expecting a strong slowdown in hiring to 10,000 jobs following May's robust 88,000 increase, wrote ING's FX Strategist Francesco Pesole in the note. The unemployment rate is forecast to stay 6.6%, while attention will focus on permanent employees' hourly wage growth, projected to pick up to 3.6% from 3.2%.
ING added it doesn't see any surprises at next week's Bank of Canada policy meeting. Barring a recovery in oil prices toward April-May levels, subdued inflation pressures should allow the BoC to remain on hold, especially as USMCA-related uncertainty continues to weigh on employment and economic activity.