USD/CAD extends the rally above 1.3800 as odds of BoC rate cut rise

• USD/CAD strengthens to around 1.3830 in Monday's early Asian session.
• Canada's economy lost 65.5K jobs in August, weaker than expected. 
• Concerns over  political instability could boost the safe-haven currency, like the US Dollar. 

The USD/CAD pair extends its upside to near 1.3830 during the early European trading hours on Monday. A weaker Canadian job report undermines the Canadian Dollar (CAD) against the US Dollar (USD). The US Producer Price Index (PPI) for August will be the highlight later on Wednesday. 

Data released by Statistics Canada on Friday showed that Canada's economy lost 65,500 jobs in August versus -40.8 prior, pushing the Unemployment Rate up to 7.1%.  The unexpected drop marks the highest unemployment level since 2016 outside of the pandemic.

These weaker-than-expected job reports strengthen the case for rate cuts by the Bank of Canada (BoC), though they disagree on how far and how fast the central bank will move. This, in turn, exerts some selling pressure on the CAD and creates a tailwind for the pair. 

The political uncertainty gripping Japan, the world's fourth-largest economy, and France, the Eurozone's second-biggest economy, might boost the safe-haven flows, supporting the US Dollar. Investors will closely monitor French Prime Minister Francois Bayrou's confidence vote, which he is expected to lose on Monday. Meanwhile, Japan's Prime Minister Shigeru Ishiba announced on Sunday that he will step down as leader of the world's fourth-largest economy.

The US Nonfarm Payrolls (NFP) report on Friday showed a slowdown in hiring in August, while the Unemployment Rate rose to the highest level since 2021, boosting Fed rate cut expectations. Following the data, traders are now almost certain that the Fed will lower rates at its upcoming meeting on September 17, with an 84% chance of it being a 25 basis points (bps) cut and a 16% possibility of a more aggressive 50 bps reduction.