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Dual US and Canadian Employment and Trade Reports: How Will CAD React?

Published August 5, 2016
  • Traders are sidelined heading into this morning's payrolls reports, and with good reason
  • Last Friday's meager GDP data from the US and Canada left much to be desired and certainly made many question the viability a Fed hike in the near term
  • The US posted 1.2% Q2 growth, worse than the 2.6% expected; while the Canadian economy contracted -0.6% in May compared with expectations for a -0.4% pullback
  • July's jobs data may fare better however, particularly from the US, and thus expectations for a strong rebound in growth during 2H16 may not be far fetched
  • The US is expected to post a 180K increase in non farm payrolls, while Canada is expected to record a 10K increase
  • Unemployment is forecast to tick down to 4.8% from 4.9% in the US and rise to 6.9% from 6.8% in Canada
  • US data since June's stellar 287K jobs gains has been mostly positive; jobless claims averaged a mere 258K per week in July, 10K lower than June's average; while Consumer Confidence in July came in a 97.3, down slightly from June's reading of 98 but still above forecast
  • Canadian data was also rather positive and may provide a platform for a much needed surge in employment growth; a mere 108K jobs have been created in the past 12 months with 77K of those part time
  • Trade data for June will also be reported with the US looking for a rise in the trade deficit to 
  • US$ -43.1B; Meanwhile Canada is expecting its deficit to narrow to C$ -2.82B from C$ -3.28B in May
  • It will be interesting to see if export data out of Canada improves allowing Governor Poloz to finally rest his cap on the mantle of his monetary policy – believe that low rates and a weak currency are enough to ignite the manufacturing sector… 

    USDCAD Technical Glance

  • USDCAD has pulled back from its pre-GDP highs in the mid 1.3200's and has since consolidated at the 1.3000 handle
  • A strong US report may be the impetus required to reignite Fed rate hike expectations which will widen US/CA yield spreads and push the USD higher
  • To the topside the key levels to watch are last week's highs at 1.3250 and the 200 day moving average at 1.3311 – a move above there would be welcome news for USD bulls and may create a bandwagon effect pushing USDCAD into the mid 1.30s in the medium term
  • To the downside, trend support from June's lows comes in at the 1.3000 mark, if this level gives way we could see a test lower to the 1.2700 area

– JP Dore

Charts:  USDCAD consolidating once again as uptrend intact. Key levels to watch at 1.3000 and 1.3250/1.33. US jobless claims trending steadily lower.