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Loonie Poised to Test New Highs; Traders Eye Canadian Employment
Posted On 12 Mar 2015
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The Canadian dollar strengthened slightly on Thursday but still seems poised to break out above 1.28 and head higher toward 1.40. Momentum is strong, and dollar strength continues to be the trend as interest rate differentialcontinue to favor the greenback. Traders are focused on Thursday’s US retail sales. On Friday, Canada will report on its employment situation which is likely to be the next driver of price action.
Canadian employment is expected to rise 5.0k in February after the 35.4k gain in January. The risk of a more substantial decline in resource sector jobs following the surprisingly soft decline in January could leave an outright decline in total employment during February. With the Bank of Canada comfortable that the January easing has provided a sufficient offset to the oil price shock, even a pull-back in total jobs is unlikely to alter the outlook that the current 0.75% rate setting will mark the floor for the policy cycle.
Total employment managed a strong 35.4k gain in January, although weak details undermined the report. Yet resource sector jobs saw only an 8.8k drop, which contrasted with concern that oil drillers and related services would sharply cut jobs in response to the plunge in oil prices. The downside risk surrounding resource sector employment remains, however, as the impact of the oil price drop works its way through the economy.
The unemployment rate fell to 6.6% in January from 6.7% in December, returning unemployment to the post-recession low seen in October of 2014. The participation rate was 65.7% in January, matching December as the lowest rate since 65.6% in July of 2000. In other words, the unemployment rate is not signaling a tightening in labor market conditions, as the falling rate has been driven by diminished participation.
A weaker than expected number will likely be the catalyst that drives the USD/CAD higher. Momentum on the currency pair is positive as the exchange rate consolidates near the recent trend highs. Support on the currency pair is seen near the 10-day moving average at 1.2575.
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