• USD/CAD reversed sharply higher on Friday to test 1.2800 on the back of strong US jobs data and amid a broad risk aversion tone.
• Currently, USD/CAD is up around 0.7% on the day and 1.5% off the multi-week lows printed Thursday below 1.2600.

USD/CAD reversed sharply on Friday after the release of what traders described as an exceptional U.S. labor market report, which boosted the U.S. dollar and, in a significantly less risky market backdrop, lifted weighed on the Canadian dollar, which is more sensitive to risk. The pair started the session below 1.2700, but at one point rallied as much as 0.9% to test almost 1.2800. At current levels of 1.2760, USD/CAD is trading with gains of around 0.7% on the day, with the pair now trading around 1.5% above multi-tier lows. weeks printed Thursday below 1.2600. The loonie is not as bad as its European counterparts like the GBP, EUR or SEK, which continue to suffer from fears over the war in Ukraine and its economic consequences, which will probably be felt the hardest in Europe.

Likewise, the loonie has somewhat surprisingly failed to keep pace with other G10 commodity currencies like the kiwi and the Aussie, as oil prices appear to be ending a historic week in high gear. Since late February, 1.2800 has offered strong resistance which was only really broken once when Russia surprised global markets with its invasion of Ukraine just over a week ago. As long as commodity prices continue to rise, and many commodity strategists fear this is likely to be the case as evidence of severe Russian export disruption continues to mount, USD/CAD could well remain capped below recent highs.

After a much stronger-than-expected Canadian Ivey PMI survey release in February earlier on Friday and a weaker-than-expected drop in labor productivity in the fourth quarter, attention turns to official Canadian labor market data. which should be published next Friday. Another factor that should play in favor of the loonie over the next few months is the more hawkish BoC, which raised interest rates by 25 basis points earlier in the week, and strong economic data should support this position. But US Consumer Price Inflation data for February, released next Thursday, poses upside risks to the US Dollar and thus USD/CAD and should also be taken into account.