Labor Data Makes USD

Labor Data Makes USD/CAD Fall Below 1.27 Again

Labor Data Makes USD/CAD Fall Below 1.27 Again – The USD/CAD currency pair fell around 0.4 percent to the range 1.2674 in trading in the New York session today (7/1/2022) after the release of US and Canadian employment data. The two reports released separately present a contrasting situation that is more favorable for Loonie in the short term.

Economists’ consensus forecast was for only 27.5k additional jobs and the unemployment rate to remain at 6.0 percent for December 2021. However, the Canadian Statistics Agency report outperformed those estimates. Canada’s labor market generated 54.7 jobs at the end of 2021, while the unemployment rate fell from 6 percent to 5.9 percent – the lowest since the outbreak of the pandemic crisis in February 2020-.

“Despite recent stronger population growth and unchanged participation rates, solid progress in (Canada) employment was enough to bring the unemployment rate down to 5.9 percent,” said Andrew Grantham, an economist at CIBC Capital Markets, “While not all the details are positive, with salary growth slowing unexpectedly and hours worked falling for the month, today’s report still signals that the (Canada) economy is very close to full-employment in December (2021)

The bright Canadian jobs report provided additional energy for the Loonie to strengthen in the forex market. Moreover, the data supports market expectations for the announcement of a rate hike by the Canadian central bank (BoC) at the end of this month.

“We opened short GBP/CAD positions targeting 1.69. Following the Canadian jobs report, we think the market will move to price in the risk of a rate hike by the BoC this month,” said Mazen Issa, senior FX strategist at TD Securities, “Although we officially expect this (rate hike) to start in April, we acknowledged that the BoC – like other central banks – may choose to ‘move early’ due to (very high) inflationary pressures.”

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Issa estimates that GBP/CAD has a chance to fall to 1.68 in the next 1-2 months. However, he does not recommend short positions on USD/CAD. The reason is, “While we also like short USD/CAD positions, the USD side can be tricky due to the Fed’s very hawkish stance, broader market moves, and entrenched positioning