Week in FX Americas – Canadian jobs obliterates outlook, NFP miss target

The highly anticipated North American jobs data releases did not disappoint, volume and intraday volatility both saw an uptick on the back of mixed results either side of the US/Canada border.

The Canadian report again surprised the market, with the October release obliterating market expectations with an employment gain of +43.1k versus a market consensus for a decline of -5k. Recent reports have been a hit or miss, mostly on the back of erroneous reporting, similar to what has been happening with Australia’s job reports. The massive improvement in the headline print has allowed the jobless rate to plunge three ticks to +6.5% atop of Canada’s six-year low unemployment rate. The Canadian economy has managed produce a big upside surprise for the second consecutive month (September’s monthly print revealed a massive +74.1k increase), led by gains in the retail and wholesale trade, financial services and manufacturing.

Canada should be worried by job mix

Despite the massive improvement, on a 12-month basis employment in Canada has only advanced a “meager” +1%, or +182k, with over half that gain in part-time jobs. The BoC Governor Poloz will want to see stronger evidence of sustainable job growth before he and his fellow policy makers will change their message on additional monetary stimulus.

The USD/CAD plummeted on the jobs headline, falling an immediate 80-pips to $1.1358 where a plethora of CAD tech bear’s have been buying U.S dollars for their long haul target north of $1.1530 (July 14 2009 dollar high). The long-term trend remains intact – it’s up – and this despite short-term concerns being evident. Market can expect both weaker commodity prices and the potential of rate divergence, especially with the U.S to continue to weigh on the loonie. Obviously for the nervous CAD bear, a weekly close near or above $1.1426 would give them far more confidence in their short CAD positions.

NFP draws a modest reaction from punters

October U.S payroll release grew modestly, managing a headline print of +217k new jobs versus an expected outright increase of +233k. On the year, U.S employers have added more than +220k on average each month, a print last consistently maintained over ten years ago. Revisions showed that the economy added +31k more jobs over the prior two-months.

Perhaps more importantly, the unemployment rate fell to +5.8% – the lowest level in six-years. This rapid decline would suggest that the Fed is probably much closer to the “natural” rate of unemployment that most CBanker’s agree exists. The Fed’s current range is anywhere between +5.2% and +5.5%. Within that range, price pressures are suppose to heat up. The current pace of the U.S unemployment rate fall would indicate that the Fed could hit that range within a few months. If so, expect this to reignite in earnest the market debate for the first-rate hike. The doves will lean on their low inflation argument, while the preemptive hawks will look to employment pressures.

Nevertheless, probably more important than the headline number for dollar bulls is the broader trend. Despite the October report missing expectations, the robust print should support market confidence that despite weakness abroad (Europe, Japan and China) the giant U.S economic engine continues to tick along, showing no signs of being affected from other economies.

Next week for the Americas:

After this weeks Central Bank events and North American employment situation next week’s economic reporting look rather anticlimactic. Fundamental events for the first two weeks in November have been a boom for intraday volatility and market volumes. Historically, the first N.A trading session after a payroll release is usually the quietest trading day of the month.

Nevertheless, China leads things off on Sunday with yearly inflation numbers. The Aussies market gets to look at NAB’s Business Confidence report. Tuesday should be quiet as nations respect veteran’s day in the U.S and Armistice or Remembrance Day in Europe/Canada.

Late Tuesday, the RBNZ Governor Wheeler is due to hold a press conference about the Financial Stability Report, in Wellington. Wednesday is dominated by the U.K with average earning reports, claimant count, while the BoE’s Governor Carney is due to hold a press conference, along with other MPC members, about the Inflation Report also release that day.

North America rounds off the week with manufacturing and retail sales reports on Friday.

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