USD/CAD Canadian Dollar Lower Ahead of Bank of Canada

US Dollar rebounds ahead of ADP payroll report

The USD appreciated on Tuesday as the US tax reform appears to have entered its final stretch. The two versions, one by the US congress and other passed by the Senate will reconcile into a final version before being presented to President Trump. The economic calendar this week was always going to be dominated by the employment releases. Private payroll processor ADP will release employment data on Wednesday, December 6 at 8:15 am EST. The report is forecasted to show a gain fo 191,000 jobs in November. The report will pave the way for the major jobs report due on Friday with more than 200,000 positions forecasted to have been added, but once again the emphasis will be on the rise of hourly wages as a signal of higher inflation.

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 official Energy Information Administration (EIA) figures will be released on Wednesday, December 6 at 10:30 am EST. The API weekly data showed a big drawdown of crude which was contrasted with a large buildup of gasoline and distillates. The price of crude will be impacted by the final number delivered tomorrow as global demand has risen while the Organization of the Petroleum Exporting Countries (OPEC) and other producers remain committed to reducing supply.

The EUR/USD lost 0.33 percent in the last 24 hours. The single currency is trading at 1.1825 after the US tax reform continues to push the dollar higher. The US Congress and Senate will be working together to merge their separate approved tax bills. The USD has faced a tough 2017 as the Trump rally started fading as the new Administration was faced with different obstacles some of their own making. The tax promised tax reforms are arriving almost a year late with some a difficult final stretch.

Despite economists pointing to three rate lifts from the U.S. Federal Reserve in 2018, the EUR is expected to appreciate next year as the European economy over-performs as the European Central Bank (ECB) starts removing some stimulus in their way to normalizing monetary policy.

Private payroll processor ADP will release employment data on Wednesday, December 6 at 8:15 am EST. The report is forecasted to show a gain fo 191,000 jobs in November. The U.S. Bureau of Labor Statistics will release the non farm payrolls (NFP) report on Friday, December 8 at 8:30 am EST. The economy is forecasted to have added 200,000 positions in November. Once again the emphasis will be on average hourly wages for signs on inflationary pressure.

usdcad Canadian dollar graph, December 5, 2017

The USD/CAD gained 0.17 percent on Tuesday. The currency pair is trading at 1.2694. The USD appreciated ahead of the release of employment data starting with the ADP payroll report. The loonie posted a five week high on Friday after the strong jobs report in Canada and the improved third quarter GDP. Some of the gains were taken back by the rise in the USD after the weekend’s vote on the Senate tax bill. As the tax reform process enters the final phase and with a potential strong employment data, some of the gains from the Canadian jobs report rally could be erased as the week continues.

A Reuters survey of 103 economists revealed that three US interest rate hikes are expected in 2018. The poll also showed that the December rate hike has a high probability and will come in at 25 basis points, the third rate hike of 2017. The BoC will be monitoring the economic indicators, but is not expected to modify monetary policy until next year when more of the unknowns such as the NAFTA renegotiation become clear and the impact on Canadian growth could be anticipated.

West Texas Intermediate graph

Oil rose in the last 24 hours. The price of West Texas Intermediate is trading at $57.50 ahead of the weekly inventory data out of the US. There are expectations of a stronger global demand for energy that combined with the 9 month extension to the Organization of the Petroleum Exporting Countries (OPEC) and other major producers production cut agreement. The API oil inventories fell 5.5 million barrels of crude, but rose 9.5 million barrels of gasoline and 4.3 million barrels of distillates. The official Energy Information Administration (EIA) figures will be released on Wednesday, December 6 at 10:30 am EST.

Market events to watch this week:

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

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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