The USD dollar decline continues as a potential June Federal Open Market Committee (FOMC) interest rate hike has all but evaporated after the weak U.S. non farm payrolls (NFP) report on June 3. The 38,000 jobs added to the U.S. economy fell short of the 160,000 expected even as economists had forecasted an impact from the Verizon strike. The size of the miss comes at a bad time for USD bulls as first the April FOMC gave little hope of a rate hike, only to show up in the minutes form that meeting. Released three weeks after the meeting the internal debate supported a rate hike in the summer. If the economy showed signs of improvement.
Employment continues to be the strongest pillar of the U.S. recovery, but it could not sustain that pace forever and it seems the Fed might once again missed a good window to be proactive with economic indicators validating their decision. The U.S. elections will mean the Fed will recluse itself from major economic decisions for fear of having a political bias. The leaves June and December as real opportunities as they both have press conferences. It might be too late for June. The CME FedWatch tool has a 3.8 percent probability of a rate hike on June 15.
The loonie will continue to fly high supported by surging oil prices ahead of the release of Canadian employment data on Friday. The Canadian economy is forecasted to add 3,100 new jobs after losing 2,100 last month. The unemployment rate is expected to remain unchanged at 7.1 percent.
The USD/CAD lost 0.446 percent in the last 24 hours. The pair is trading at 1.2704 and the loonie has gained more than 2 percent in the last 5 days. The employment report disappointment and failure from the Fed Chair to hint to rate hike this month, has put downward pressure on the U.S. dollar.
West Texas gained 1.442 percent and is trading above $50 after the crude inventories in the U.S. showed a drawdown of 3.2 million barrels. The deficit was expected but with the USD on the backfoot after the jobs data energy prices have risen more than 4 percent in 5 days. Disruptions continue to plague the supply chain and are keeping the price of crude at current levels even as Middle East producers are pumping at record high.
Canadian data has been mixed this week. The Ivey PMI survey released on Tuesday, June 7 showed a contraction in May at 49.4. The loonie’s recovery as well as the economic impact of the Alberta wild fires are taking a toll on the leading indicator. Housing maintained a steady pace of growth with 189,000 housing starts and a slight reduction of 0.3 percent in new building permits.
The Bank of Canada (BoC) will release its Financial System Review on Thursday, June 9 at 10:30 am to be followed by a speech by BOC Governor Stephen Poloz at 11:15 am EDT. The central bank is expected to address the housing sector risks as household debt has risen with particular concern on variable mortgages even as the Fed is taking its time hiking rates, it will definitely be before new mortgage terms are up, when the hikes begin.
CAD traders will be following the speech by Governor Poloz tomorrow as the employment data will be released a day after to close the week.
CAD events to watch this week:
Thursday, June 9
3:00am EUR ECB President Draghi Speaks
8:30am USD Unemployment Claims
11:15am CAD BOC Gov Poloz Speaks
Friday, June 10
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar
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Alfonso Esparza
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
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