A Tale of Two Dollars

Canadian and US employment reports could not be so different. Canada produced a whopping +82k new jobs last month, beating all expectations and now has futures dealers pricing in a year end rate hike, while the US could only manage an anemic +120k gain on Friday. Even with an upward revision and a -0.1% drop in the unemployment rate was too low to keep the interest rate led USD advance of late intact. However, the lack of US economic strength could create broader global economic fears, again driving the dollar to outperform as investors actions translate into more risk aversions.

Below are some other highlights of the week:

AMERICAS

• USD: ISM manufacturing index rose an even one point to 53.4 last month, beating market expectation of 53. New orders slipped a tad, but that was more than made up for by the gains in the employment and production indices. The modest rate of growth is probably more than we can expect despite the elevated oil prices and softer growth abroad.
• USD: US construction is still weak (-1.1 in February) and mild weather cannot be used as an excuse.
• FED: Bullard indicated that it may be time to think about a policy transition and that inflation remains an issue for currencies tied to the dollar.
• CAD: BoC Carney stuck an upbeat tone in a speech at the beginning of the week. He stated that the conditions in the economy were “somewhat stronger” and that he will take whatever action is necessary to keep inflation circling +2%. He added that the high CAD will dampen export demand but commodity “prices” will remain high. Is he laying the groundwork for more upbeat economic forecasts when the BoC its MPR on April 18. He also indicated that it’s partially true that the loony’s value has hurt the country’s exports, but, so has, other factors, such as competition from emerging markets. Export strategy cannot rely on expectations of a more favourable exchange rate.
• FED: Members were vocal most of the week with Fischer (Dallas) talking down further stimulus, Pinalto (Cleveland) believing that the US Economic recovery is “self-sustaining” despite continuing head winds and Lockhart’s (Atlanta) US Economy can be seen as ‘half full or half empty.’ The outlook for the US economy is “positive enough without more QE.”
• USD: Orders for US factory goods rebounded in February (+1.3% or $468.4b) on rising demand for machinery, vehicles and aircraft, proof that manufacturers regained momentum after a slow start to the year. January’s numbers were depressed because the “accelerated depreciation tax incentive in December may have pulled ahead orders.”
• FED: The FOMC minutes for the 13th of March meeting were viewed as generally hawkish. The replacing of ‘a few’ by ‘a couple’ of members does not show widespread enthusiasm for doing anything any time soon. If the FOMC ever had that, “Itchy trigger finger,” then Bernanke and company have done a good job in hiding the fact in the minutes. If anything, the minutes at times seemed defensive about the very accommodative posture the Fed has already being adopting. There was plenty of language downplaying some of the strength in recent US data. The basic message was that the underlying situation appeared to have improved and that additional easing measures were unlikely absent renewed deterioration. The minutes also showed a new debate emerging amongst officials on whether there is still much slack in the US economy that will keep inflation subdued.
• USD: Hoping that they have not gotten ahead of the labour curve in general, ADP says that +209k private sector jobs were created in March, a number that did not require an NFP estimate revision.
• USD: ISM non-manufacturing index declined from 57.3 to 56 in March. This slower implied rate of growth is the weakest of the year. Big picture, it seems that the US recovery continues to plod along, with private services (+50% of the total economy) having picked up pace in Q1. Again, employment is the only subcategory to witness a gain.
• USD: EIA reported a second straight week of large crude oil inventory growth. Over the past two weeks, inventories have grown +4.6% or +16.1m barrels. Total market inventories now stand at +362.4m barrels, the highest level in 41-months.
• CAD: Canadian employment numbers blew all predictions out of the water. Canada reported net job gains of +82.3k (Full-time +70k and +12.4 part-time). The unemployment rate fell from +7.4% to +7.2%. Analysts had been expecting an increase of +10.1k. The labor force increased +52.5k, month-over-month. Average hourly wages increased +2.6%, y/y.
• CAD: Building permits surged +7.5% in February. CAD: Canadian Ivey Purchases Managers Index was 63.5 seasonally adjusted in March, indicating that purchasing activity expanded from February.

• USD: US weekly jobless claims hit a four year low, falling-6k to +357k. The four week moving average drops to +361,750. No analysts made revisions for payrolls number.
• USD: US payroll disappoint, (+120k vs. +203k) a mixed bag of data (unemployment rate +8.2% vs. +8.3%) and a step back from the undulated advances from recent months.The drop in the unemployment rate was due to fewer Americans seeking work rather than more workers getting jobs.

EUROPE Week in FX

ASIA Week in FX

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