USD/CAD Canadian Dollar Lower Ahead of US Private Jobs Report

The Canadian dollar gave back gains from the previous day as the turmoil surrounding the Trump Administration were given lower priority as the US employment releases this week will start with the release of the ADP on Wednesday.

The Canadian dollar has been appreciating against the USD since the Bank of Canada (BoC) changed the tone from neutral to hawkish in June. The central bank followed through with a 25 basis points rate hike in July. The loonie has taken advantage of USD softness as political uncertainty in Washington have impaired the greenback.

Canadian employment data will be released on Friday at the same time as the biggest indicator in the market, the U.S. non farm payrolls (NFP) at 8:30 am EDT. Canadian jobs have far exceeded expectations in the last two reports by quadrupling the forecast. Canada is forecasted to gain 11,000 jobs on Friday, but investors will be focused on American wages for signs of a pick up in inflation that would keep the Fed on the current path of rate hikes.

usdcad Canadian dollar graph, August 1, 2017

The USD/CAD gained 0.574 percent on Tuesday. The currency pair is trading at 1.2543 after the USD has recovered ahead of US jobs reports. Canadian data has boosted the loonie this year and the manufacturing purchasing managers’ index (PMI) rose to 55.5 earlier today. A strong first quarter could be followed by another solid gain that could keep pushing the currency higher.

The Bank of Canada (BoC) cut rates twice in 2015 to soften the blow to the economy from a drop in oil prices, but as crude has stabilized thanks to the efforts of the Organization of the Petroleum Exporting Countries (OPEC) the central bank had a quick turnaround in June and is now expected follow the July interest rate hike with another in October. The timing of the decision makes sense if the Canadian central bank wants to see if the Fed decides to start reducing stimulus in September and a Canadian rate rise could preempt a rate hike by the Fed in December

West Texas Intermediate graph

Oil prices lost 2.078 percent in the last 24 hours. West Texas Intermediate is trading at $49.06 as details of a rise in OPEC production as published by Reuters. The deal between major producers has kept prices in the current range, but there are cracks starting to appear on the sustainability of the agreement.

Saudi Arabia has capped production more than any member to cover the gap left by nations that could not cut as quickly or a deep. Disruption issues in Nigeria and Libya exempted the producers from participating but as they get close to recovery their production pressures prices.

Weekly oil reports have dictated the direction of energy prices as lower inventories have given way to a surge in oil prices, but demand remains stagnant limiting how high prices could really go.

Market events to watch this week:

Wednesday, August 2
4:30 am GBP Construction PMI
8:15 am USD ADP Non-Farm Employment Change
10:30 am USD Crude Oil Inventories
9:30pm AUD Trade Balance
Thursday, August 3
4:30 am GBP Services PMI
7:00 am GBP BOE Inflation Report
7:00 am GBP MPC Official Bank Rate Votes
7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:30 am GBP BOE Gov Carney Speaks
8:30 am USD Unemployment Claims
10:00 am USD ISM Non-Manufacturing PMI
9:30 pm AUD RBA Monetary Policy Statement
9:30 pm AUD Retail Sales m/m
Friday, August 4
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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