USD/CAD – Canada’s Jobs Report A Sideshow To NFP

Canada’s trade numbers on Thursday suggests that the export sector is holding up its end of the bargain after posting healthy growth for the second consecutive month in July (-CAD$0.6b vs. -$0.8b).

Despite Q2 GDP numbers at the beginning of the week confirming that Canada has entered a mild recession, yesterday’s solid report would indicate that the BoC’s proactive stance of cutting overnight rates this year, which has weakened the CAD ($1.3225), would seem to be aiding growth.

The BoC’s Governor Poloz mentioned disappointing non-energy exports as one reason it cut interest rates in July, for a second time. Yesterday’s figures seems to have convinced fixed income traders that the bank will leave interest rates at +0.5% when it announces its decision on Sept. 9.

Preempt The Fed

The BoC’s Governor Poloz would certainly find it rather difficult to preempt the Fed’s rate decision on September 17. If BoC eased and the Fed tightened, rate differentials would become too aggressively wide too soon. Expect Canada’s policy makers to adapt a ‘wait and see’ approach, at least until after the Federal election on October 19.

Canada’s employment report will be the sideshow this morning, as NFP will hug the limelight. With the Fed stressing the importance of “data dependency” in their decision to raise interest rates, today’s U.S payrolls report is the last unknown variable before their September rate decision announcement.

In July Canada added +6.6k new jobs, replenishing a similar decline in June. The jobs addition did not alter the unemployment rate, which remained stuck at +6.8%. The majority of the positions added in July were part-time. This time around Canada’s labor market is expected to cut -2.5k jobs while the unemployment rate is forecasted to remain unchanged.

Friday: Canada created more jobs than expected in August

Statistics Canada reported that employment increased by +12.0k (-4.5k e). The unemployment rate jumped +0.2% to 7.0% (+6.8% e). The participation rate ticked up to +65.9% from +65.7%. The breakdown showed that there was +54.4k full-time jobs created and -42.4k part-time jobs lost (year-over-year, +193,000 or 1.1% new jobs created). At the same time, the total number of hours worked rose +2.1%.

Loonie Held Hostage By Dollar Direction

Canada’s job release will be a minor irritation to traders, no matter what’s printed, investors will be focused on the impact of NFP and whether its will influence the Fed’s rate decision.

For now, the CAD remains contained in a relatively tight range into today’s double payroll reports. Yesterday, USD/CAD printed an intraday low of $1.3135, helped by the better trade data. Currently, USD resistance remains just shy of the $1.3300 handle.

Despite rate differentials, the loonie remains hypersensitive to crude oil prices. The commodity and interest rate sensitive currency was within a whisker of closing out last month challenging its 11-year low (CAD$1.3353), before dramatically reversing course and ending up rallying hard against the dollar earlier this week on the back of crude prices finding support.

Initial support: o/n low $1.3177, Thursday’s $1.3135, Monday’s low $1.3117-16
Resistance: Yesterdays high $1.3289, Wednesday $1.3325, Aug 25 $1.3353 (11yr high)

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