The USD/CAD lost 1.55 percent on Friday. The currency pair is trading at 1.2695 after the Canadian jobs number defied expectations with a 79,500 positions added in November. Monthly gross domestic product (GDP) came in higher at 0.2 percent but in fact confirmed the slowdown of the economy as the third quarter saw an expansion of 1.7 percent and a downward revision to the second quarter data to 4.3 percent. The Canadian economy grew a bit less than expected by the Bank of Canada (BoC) who had forecasted a 1.8 percent gain but beat the economist forecast of 1.6 percent. The number did validate the effective cool down of growth in Canada which puts the central bank on a more wait and see approach despite the solid gains seen in employment.
The Bank of Canada (BoC) will release its benchmark rate statement on Wednesday, December 6 at 10:00 am EST. The central bank is anticipated to keep rates unchanged at 1.00 percent after already hiking twice in 2017. Canadian jobs data defied estimates and gained 79,500 jobs in November raising the probability of the next Canadian interest rate hike coming sooner rather than later, but the data will not influence the decision on Wednesday.
The loonie was on the back foot for most of the past week with the USD gaining 1.53 percent in the last 4 days on the market optimism that the Trump Administration could score a victory. Expectations of a rate hike by the U.S. Federal Reserve in December are high, and already priced into the pair, but the Bank of Canada (BoC) is seen more dovish by the minute. A new Reuters survey of 30 economists shows that there is little expectation of a rate move by the Canadian central bank in December, and a third see April at the earliest.
Factors such as the precarious state of the NAFTA renegotiations and evidence of the economy slowing down have cooled the BoC’s desire to reduce further stimulus worried about the effect of higher interest rates on borrowers that hold record high levels of debt. The two data releases on Friday could confirm the headwinds facing the loonie, or in case they over perform expectations give the currency a boost against the US dollar.
Oil surged on Friday as the decision by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to extend its production cut agreement by 9 months combined with geopolitical risks being elevated in the US after the news broke that Michael Flynn pleaded guilty to lying to the FBI. West Texas Intermediate is trading at $58.12 and is almost back to the price levels where it opened on Monday.
The fact that the OPEC announcement was expected and already priced-in exacerbated market reactions to rumours about the duration and doubts that Russia will sign on for the full 9 months. Despite a positive move on the day of the announcement, a strong dollar led by tax reform optimism on Thursday put the price of energy at weekly lows.
Despite the united front shown in Vienna between the OPEC and other major producers, most notably Russia, there are various calls within the bloc to look for an exit strategy. Russia is keen to get back to full production, but for now will seek stability than profits. Nigeria and Libya who were exempt from the original production cut have now been limited to not exceed the levels from this year as compliance within the group will be a challenge.
US shale producers continue to ramp up production and free from weather disruptions will put pressure on crude prices that have been boosted by the effort put forth by the OPEC. The technology advances that made oil extraction cheaper created a sudden drop in prices as the OPEC sought to price them out of the market in a strategy that backfire by exchanging market share for profits.
Diplomatic stability within the producers organization will prove to be difficult as Saudi Arabia has taken a more aggressive role in domestic and regional politics which could pit it against number two and three producers Iraq and Iran.
Market events to watch this week:
Monday, December 4
4:30am GBP Construction PMI
7:30pm AUD Current Account
7:30pm AUD Retail Sales m/m
10:30pm AUD Cash Rate
10:30pm AUD RBA Rate Statement
Tuesday, December 5
4:30am GBP Services PMI
8:30am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
7:30pm AUD GDP q/q
Wednesday, December 6
8:15am USD ADP Non-Farm Employment Change
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
10:30am USD Crude Oil Inventories
7:30pm AUD Trade Balance
Thursday, December 7
8:30am USD Unemployment Claims
11:00am EUR ECB President Draghi Speaks
Friday, December 8
4:30am GBP Manufacturing Production m/m
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar