On Friday (September 4) during the Asian session, the USD/CAD pair consolidated below 1.3800, near the two-week low reached on Thursday. Oil prices remained high due to geopolitical risk premiums (the ongoing US-Iran standoff at Hormuz), while the Bank of Canada's hawkish signals from its September meeting provided support for the Canadian dollar. Federal Reserve Governor Waller's dovish comments lowered the probability of a September rate hike from 64% to 54%, leading to lower US Treasury yields and pressure on the US dollar.

Oil prices and hawkish signals from the Bank of Canada supported the Canadian dollar.

The USD/CAD pair consolidated below 1.3800, near a two-week low. Oil prices remained high due to geopolitical risk premiums (the ongoing US-Iran standoff in the Strait of Hormuz), and the Bank of Canada's hawkish signals at its September meeting provided support for the Canadian dollar. Federal Reserve Governor Waller's dovish comments lowered the probability of a September rate hike from 64% to 54%, leading to lower US Treasury yields and pressure on the US dollar. The US dollar index fell to a more than one-week low, and the market is focusing on Friday's US and Canadian employment data for policy clues. The core factors supporting the Canadian dollar are twofold: first, oil prices remained high due to geopolitical risk premiums from the US-Iran standoff in the Strait of Hormuz, directly benefiting Canada as an oil exporter; second, the hawkish signals from the Bank of Canada's September meeting reinforced expectations of its interest rate advantage relative to the Federal Reserve. Meanwhile, Fed Governor Waller's dovish comments quickly lowered the probability of a September rate hike from 64% to 54%, causing US Treasury yields to fall and the US dollar index to a more than one-week low, further easing external pressure on the Canadian dollar. Market focus has shifted entirely to Friday's upcoming US and Canadian employment data, which will provide key clues about the future policy path of the two central banks and determine the short-term direction of the USD/CAD exchange rate.

TD Securities: Strong non-farm payrolls are not enough to drive interest rate hikes; inflation is the key.

TD Securities points out that even strong non-farm payroll data is only a "necessary condition, not a sufficient condition," for raising interest rates—inflation is the decisive factor. Strong employment data will have limited impact on the dollar unless accompanied by strong inflation data. If both US and Canadian employment data are weak, the USD/CAD pair may fall further to around 1.3750; if US data is strong while Canadian data is weak, the exchange rate may rebound above 1.3850. TD Securities clearly distinguishes the policy weights of employment and inflation in its latest commentary. The bank emphasizes that even strong US non-farm payroll data only meets the "necessary condition" for raising interest rates; the sufficient condition that truly determines whether the Fed will act is still inflation data. Therefore, the boost to the dollar from good employment alone is limited unless inflation strengthens in tandem.

Summarize

The USD/CAD pair is currently consolidating below 1.3800. Oil prices and hawkish signals from the Bank of Canada are supporting the Canadian dollar, while Waller's dovish comments are putting pressure on the US dollar. TD Securities believes that strong non-farm payrolls are insufficient to drive interest rate hikes; inflation is the key factor. In the short term, the USD/CAD pair's movement will be primarily driven by the relative strength of employment data from the US and Canada, as well as the evolution of geopolitical tensions in the Middle East. If both countries' employment data fall short of expectations, the Canadian dollar is likely to maintain its upward trend; if US non-farm payrolls data significantly exceed expectations, it could trigger a rebound in the USD/CAD pair. (USD/CAD daily chart, source: EasyForex) At 13:28 Beijing time, USD/CAD was trading at 1.3791/92.