Loonie Edges Lower Following Soft Jobs Report

Posted On 10 Dec 2014
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The uptrend in the USD/CAD is likely to continue to move higher in the wake of last week’s softer than expected payroll report and the current dovish stance of the Bank of Canada. While the Fed is expected to lift the considerable period language in its policy statement which should give a boost to the greenback, the BOC will likely be on hold until late 2015.

Canadian economic data since the Bank of Canada’s announcement has underpinned the Bank’s dovishly balanced view, suggestive of no rate hikes until late 2015. Meanwhile, U.S. economic datacontinues to come in on the firm side, fueling expectations for Fed lift-off by the middle of next year. The diverging policy outlooks suggest further outperformance of Canadian Government Bonds relative to Treasuries and continued depreciation of the Canadian dollar in 2015.

Canada’s recent reports were supportive of the Bank of Canada’s balanced view last week. The most prominent development was employment, which fell 10.7k in November, contrary to expectations but not a shock given the 43.1k rise in October and 74.1k gain in September. The details were mixed, as full-time employment rose 5.7k in November while part time jobs fell 16.3k. But private sector employment tumbled 45.6k in November while public jobs expanded 22.6k. The unemployment rate edged higher to 6.6% in November from 6.5%. Hours worked tumbled 0.5% month over month in November, adding to the downbeat tone of the report.

In contrast to the Canadian jobs report, the U.S. employment report was quite strong, as jobs rose 321k in November alongside a 0.4% hourly earnings rise, a workweek climb to a 34.6 cycle-high, and a 0.6% hours-worked surge. The employment and trade reports add to the prospects for slower Canadian growth in Q4 and throughout 2015 relative to the elevated 3.6% pace in Q2 and 2.8% rate in Q3 of this year.

The USD/CAD is in a well-defined uptrend. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

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