USD/CAD Loonie Falls as US Employment Crushes Forecasts

The USD/CAD appreciated following the release of the U.S. non farm payrolls (NFP) report this morning. The American economy added 271,000 jobs when 180,000 where expected. The economic indicator have been underperforming in the past two outings and came back strong to help the Federal Reserve make a case for a rate hike in December. Canadian jobs data was also positive with 44,000 new jobs added when 9,500 were expected. The bulk of the new jobs were related to the general elections that saw gains of 32,000 temporary positions.

The Canadian jobless rate was driven downwards to 7 percent by the strong job gains in October. The American unemployment rate hit a seven year low of 5 percent with the massive result in today’s NFP report.

The USD/CAD broke through previous resistance levels as the positive NFP report was published taking the pair near the 1.33 price level. The stronger than expected report increases the probability that the Federal Reserve will finally raise interest rates after almost two years of teasing the monetary policy shift.

The USD/CAD was neutral ahead of the employment release. The Canadian data was impressive, but not enough to offset the U.S. jobs elephant in the market. The interest rate divergence, with the Bank of Canada cutting rates twice in 2015 and the Federal seeming on its way to hike for the first time in a decade will put further pressure on the CAD who is still coping with low oil prices.

Canadian Election Job Gains Don’t Hide Energy Losses

The natural resources industry has lost over 26,000 jobs in the past twelve months as the low price of crude has forced companies to make cuts as revenues plummet. The price of oil is trading below $50 per barrel and has hit Canadian fields that are expensive to drill. The Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia has kept production targets at record high, but there are reports that this could change in their December meeting in Vienna. Oil demand has been lower as the global economy has slowed down, in particular commodity hungry China which has hit exporters such as Canada, Australia and Brazil.

Next week the Loonie will not have economic indicators to dictate its flight, making it more exposed to external events. The U.S. economy will face the next hurdle to convince the market it is ready for a potential December rate hike with the release of the retail sales data. U.S. retail sales data has put a stop to several USD rallies so it becomes the next milestone needed ahead of the FOMC in December.

Canadian events to watch next week:

Monday, November 9
8:15am CAD Housing Starts
Tuesday, November 10
12:00pm CAD Gov Council Member Wilkins Speaks
Thursday, November 12
8:00am CAD Gov Council Member Wilkins Speaks
8:30am CAD NHPI m/m

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza