Week in FX America – Canada’s Loonie Takes Flight

Reversing an error in its original July jobs report, Statistics Canada’s revision to its employment data showed the Canadian economy created 41.7k jobs last month and not 200 as initially reported. Coupled with improving manufacturing sales data, the good news has given CAD bulls hope.

The last employment report, released on August 8, needed to be recalibrated due to the failure to count certain people as being in the labor force. The agency said the human error was a result of a redesign of its Labour Force Survey that is conducted every 10 years. The revised employment release issued on Friday morning showed the Canadian jobs market more than doubled expectations. However, the country’s unemployment rate was not restated and it remains at +7%.

Digger deeper, the six-month hiring moving-average climbed to +10.7k, slightly above the +4k trend implied by the previous report. The largest error appeared within the full-time headline, which was restated, down only -18.1k versus -59.7k in the initial report. The participation rate also held steady in this report at +66.1% versus falling to +65.9% in the previous July report.

Correct Digits Make a Difference

In line with the processing error, nearly every sector saw some kind of sizeable revision. Professional services (+7.9k), health care and social assistance (+2.7k), information services (+2k), accommodation and food services (+2.8k), transportation (-7.3k) all swung around quite a bit. Changes on the goods-producing side of the labor force were more subdued (a +5.3k addition in the utilities space was the biggest move).

In annual terms, July’s employment figures show a gain of +156.8k jobs over July 2013, which is a +0.9% increase. Of that increase, +38.5k jobs are full-time and +118.4k are part-time positions.

On the manufacturing front sales rose +0.6% in June to C$52B — the fifth increase in six months. Even the backward revisions were good. May was revised higher to +1.7% from +1.6%. Sales growth was seen mostly in chemicals, petroleum, and coal products.

The net result to the Canadian bond curve is that it has flattened a tad, with short yields rising while longer maturities are little changed.

For the CAD, and despite the stronger reports, it has again run into stubborn resistance sub $1.0900. The $1.0865-70 support is still hanging tough. From a technical perspective, it’s the 100- and 200-DMA for the pair.

From a fundamental standpoint, a stronger jobs report and a solid manufacturing sales print combined with a weaker Federal Reserve Bank of New York manufacturing survey (14.7 versus 25.6), would suggest that the loonie, as the Canadian dollar coin is known, has more upside potential. However, when the jobs error was reported midweek it allowed the CAD bulls to begin pricing in a more positive number for July. Investors will look to the six-month trend, which is still subdued along with wage growth (flat) for further directional conviction, and on first reflection, the Canadian jobs gain remains modest at best. Any CAD gains will continue to be a grind. Corporates remain a better buyer of USD/CAD on dips.

What to Expect for Next Week

Next week is central bank minutes week. The Reserve Bank of Australia will kick proceedings off on late Monday evening followed by the highly anticipated Bank of England pow-wow midweek where the market is looking for signs of dissent, especially now that Governor Mark Carney seems to have thrown cold water on a fourth quarter rate hike. The Federal Reserve is not expected to deliver any surprises, however many will be looking for any hawkish comments from Fed Chair Janet Yellen at the Jackson Hole Economic Symposium. Sandwiched between the minutes and the Symposium will be China, France, and German flash manufacturing purchasing managers’ indexes. The U.K. and Canada deliver their retail sales reports before Friday’s labor market speech from both Yellen and European Central Bank President Mario Draghi.

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