Canada’s employment number was the largest drop since 2009, Ontario’s new minimum wage, and post-Christmas temporary retail layoffs, combined to give the uptick in the unemployment rate.
Market nervousness continues, equities are still showing signs of a downward trend, while interest rates are steady. Oil has fallen below $60 USD a barrel, U.S. shale production is running at record levels, allowing producers to export around the world.
The Canadian dollar remains relatively unchanged even with the depressing news, expect a narrow range today, unless there is a significant change in equities.
USDCAD 1.2590, 1.2577, 1.2566 1.2630, 1.2642, 1.2652
USD-CAD has gained 3 big figures from last week’s lows. The stellar U.S. jobs report of last Friday lit a fire under the U.S. dollar. The data, having rekindled expectations for Fed tightening, also sparked a spike on sovereign yields and a risk-off theme in global equity and commodity markets, including oil prices. This is a supportive backdrop for USD-CAD, and we expect the pair to remain underpinned this week. Support is at 1.2475-76.
We expect the pair, already having established a downtrend (lower highs, lower lows) over the last week, will remain biased to the downside. We base this view on the rekindled commitment of the Fed to a tightening policy course (which is looking to be on track to hike the funds rate four times this year, starting at the March FOMC), juxtaposed to the ECB’s evident disquiet about euro strength. Initial EUR-USD resistance is at 1.2335-38.
Sterling has been knocked off its perch, with selling triggered by misses in UK industrial production and trade deficit data for December. Cable dove to a low of 1.3908, about 80 pips down on the high seen during the early London session. The pound fell by a similar magnitude versus the euro, yen and other currencies. Remarks by BoE MPC member Broadbent had earlier given the pound a lift, as he noted a recovery in household real incomes, although he was non-committal with regard the scope for tightening when asked during his interview on BBC radio. Going forward, how Brexit evolves, and how other central bank polices develop, will be key for the bigger-picture path of sterling, and uncertainty about these may curtail the currency’s upside potential over the nearer-term. On the Brexit front, negotiations have entered a crucial phase, with both the EU and UK seeking to make a tentative accord on both a post-Brexit transition period and the form of a post-Brexit trading relationship, all in time for the EU leaders’ summit in late March.