• USD/CAD drops sharply to 1.3700 due to multiple headwinds.
• A significant fall in the US Dollar and higher Oil prices weigh on the Lonnie asset.
• The Canadian Employment data will impact BoE’s rate-cut prospects.

The USD/CAD pair falls sharply to the round-level support of 1.3700 in Thursday’s early American session. The Loonie asset faces selling pressure due to multiple headwinds such as sharp fall in the US Dollar after higher-than-expected Initial Jobless Claims (IJC) for the week ending May 3 and a strong recovery in the Oil price that strengthens the Canadian Dollar.

The S&P 500 has opened on a cautiously optimistic note. The 500-stocks basket was expected to open on a negative note due to weak S&P 500 futures. Overnight futures recovered sharply after the United States Department of Labor reported a significant rise in jobless claims, suggesting an improvement in investors’ risk-appetite.

Individuals claiming jobless benefits were 231K, significantly higher than the consensus of 210K and the prior reading of 209K, upwardly revised from 208K. This has raised concerns over the labor market maintaining its strength in the longer term. Also, it signals the deepening consequences of higher interest rates by the Federal Reserve (Fed). For April month, Nonfarm Payrolls (NFP) missed estimates by a wide margin.

However, Fed policymakers continue to support keeping interest rates at their current levels for long enough until they get convinced that inflation will sustainably return to the desired rate of 2%. On Tuesday, Minneapolis Fed Bank President Neel Kashkari said weakness in the job market could justify a rate-cut move.

Meanwhile, the Oil price has recovered sharply due to a drawdown in US oil stockpiles for the week ending May 3. The US Energy Information Administration (EIA) reported on Wednesday that crude inventories were lower by 1.362 million barrels after rising significantly to 7.265 million barrels last week. It is worth noting that Canada is the leading exporter of Oil to the United States, and higher Oil prices strengthen the Canadian Dollar.

Going forward, the Canadian Dollar will dance to the tunes of the Employment data for April, which will be published on Friday. The Canadian job market is estimated to have expanded by fresh 20K payrolls against a drawdown of 2.2K. The Unemployment Rate is anticipated to have risen to 6.2% from 6.1%. The labor market data will significantly influence the Bank of Canada’s (BoC) interest rate outlook.