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Loonie Falls After Mixed Jobs, Trade Data

Published November 4, 2016
  • USDCAD is testing the upper end of its recent range as it moves into the mid 1.34's, a fresh 7-month high, following a relatively dour set of economic data
  • Employment growth in Canada spiked during October with the economy adding 49k positions
  • This handily beat the -10k drop that was forecast, however delving deeper into the numbers reveals a less impressive picture
  • 67K part-time positions were created while 23k full-time positions were lost…not a great mix for wage growth which can play into consumer confidence, retail sales and thus inflation expectations
  • This is likely contributing to the quick sell-off in the Loonie that we are noticing following the report
  • Canada also reported a record trade deficit for September as a large rise in import volumes handily eclipsed a very small rise in exports
  • The C$ -4.08B deficit is certainly going to get the Bank of Canada's attention given that a strong export sector driven by an improving manufacturing base has been one of Governor Poloz's goals since he took over the reins as Canada's top banker
  • Employment data from the US was also released this morning with headline numbers coming in below forecast
  • The US added 161k jobs last month compared with consensus estimates of 175k
  • Encouragingly, September's jobs data was revised upwards to show a gain of 191k compared with 156k previously reported
  • As well, weekly earnings rose a better-than-expected 0.4% and a key measure of structural unemployment – U6, or those in part-time or underemployed jobs for economic reasons – fell to 9.5% from 9.7%, a positive sign for the economy assuming those workers did not leave the workforce entirely
  • All in all, the data suggests that the Fed is justified in hiking rates in December barring an unforeseen event 
  • The US dollar remains broadly bid this morning; however, with the US election coming up Tuesday, we could be in for some wild swings in the short term so stay tuned if you have near term FX cash flows to address!

Charts: (1) USDCAD. (2) US-CA 2 year yield spread. (3) Economic Calendar.