The USD/CAD pair has been wound fairly tight recently, and the Tuesday session was no different. After all, we have the nonfarm payroll number coming out on Friday, and this of course will have a great affect on this currency pair. Essentially, you have to think of the interconnectivity between Canada and the United States to understand the fact that the market may sit still for the next couple of days.
The jobs number coming on the United States is highly important in the eyes of Canadians, as they send 85% of their exports into the US. If the Americans are working, they are buying Canadian goods. Because of this, this pair actually moves in a manner that is somewhat counterintuitive as the Canadian dollar generally strengthens when there are good jobs reports out of the United States. However, in this environment we find ourselves trading and right now, a bad jobs number is actually good for risk appetite as well, as it would signal that the Federal Reserve has quite some time before they have to consider slowing down the easing pattern that they have been in. As a side note, it should be noted that I don't think there's anything that's going to slow this down, and as such we will eventually see a “risk on rally” after the nonfarm payroll number regardless of what you see on Friday.
There are a few possibilities between now and then
You also have to keep your eye on the oil markets, as the Canadian dollar is highly leveraged to those particular commodity markets. With this being said, there is plenty tension in the Middle East right now to go around, and there of course will be headline risks out there that could flare up at any given moment. If oil spikes in price, the Canadian dollar generally does as well and this should send this pair lower.
Currently, I see this pair is been stuck between the 0.98 handle and the 0.9850 level. I don't know that we will breakout before Friday, and it should be noted that there is quite a bit of resistance all the way to the 0.9950 level anyways, and this will make buyers struggle to get this market moving. I have to admit, I would be much more comfortable selling this pair if we can get down below the 0.97 handle as it would show a significant break of support.