Week in FX America – Loonie under part-time pressure

While varying degrees of geopolitical tensions whipsaws investors, a paltry net gain of 200 jobs in Canada in July is pummeling the loonie bulls as their labor market continues to misfire. The street was looking for a healthy reply to June’s disappointing net loss of -10k jobs. They were not even in the same ballpark on the headline. The only reason the level of employment did not fall again last month is because a +60k surge in part-time work was offset by a highly disappointing loss of – 59.7k in full-time work. This trend is not new – Canada is rapidly becoming a nation of part-time employment and a scenario that is worrying authorities. As noted by many, that if Governor Poloz at the BoC was operating under the dual mandate of inflation and unemployment, similar to that of the Fed’s, Canadian policy makers would be considering easing their already record low monetary policy. Instead they will be sticking to their neutral bias indefinitely amid concerns about slack in the economy.

The scary headline is that in the past 12-months Canada has lost -3k “full-time jobs,” while “part-time” employment has increased by +119k. Gone too is its manufacturing base and now replaced by a service sector. Do not be fooled by the drop in the headline unemployment number by one tick to +7%. The decline only occurred because the participation rate fell to +65.9% from +66.1%, a thirteen-year low, as +35k disillusioned job hunters gave up and left the labor force.

It was not a surprise to see USD/CAD rally hard after the release to it week’s highs, only stopping ($1.0973) due to some deep dollar offers between there and the psychological $1.1000 handle. Corporate demand for USD has been reported raising their bids to above the $1.0900 figure. Depending on how the commodity landscape plays out on the back of geopolitical tensions, the loonie remains better offered on USD pullbacks outright while underperforming on some of the crosses.

Commodities flounder for now

The natural resource sensitive currency is finding little love from commodities. Crude is rounding off the week, narrowing its losses (WTI $97.70), following the US airstrikes in Iraq and also aided by the drop in Thursday’s US weekly claims headline print (+289k vs. +305k). Gold is trading flat ($1,312) after earlier hitting its best levels in three-weeks. The yellow metal is finding it difficult to stay within shouting distance of the recent highs despite geopolitical tensions. Firmer US data will continue to work against additional metal gains, with concerns that Ms. Yellen and company at the Fed will move more quickly to shift its interest rate policy.

What to Expect Next Week

Central banks are done for a while, but the market will get to hear from Carney midweek. The BoE will publish its forecasts for growth and inflation and investors will be looking for clues on the timing for the U.K.’s first post-crisis rate hike. Aussie business confidence data will kick-start the week down-under, while the German ZEW economic sentiment will open the European session. Ahead of U.S. consumer sentiment rounding out the week, the market gets a peek at U.S. consumer appetite from its retail sales data.

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