Canadian dollar rallies on robust jobs report, US Producer Inflation is here

This week the Fed was mostly united in signaling they have the tools to fight inflation and that upcoming round of pricing pressures will likely be transitory and that they will have to wait until next year to be proven wrong. 

Wall Street will be proactive in forecasting whether price pressures are not transitory.  If the next few months show that the trend is for consistent upside surprises, the bond market selloff could accelerate, sending Treasury yields and the dollar higher.  Fed policy might be on cruise control until inflation is at 2% for at least a year and when the labor market returns to full employment, but if Treasury yields surge too quickly, that will force Fed action.  It might take a couple of months, but the Fed could be forced to alter their purchases, increasing the weighing to more Treasuries and less mortgage-backed securities.  

PPI

A delayed PPI reading brought some suspense to the last trading day of the week.  US producer prices showed inflationary pressures are here.  The March PPI for final demand came in twice as hot as expected at 1.0% in March.  The annual reading rose 4.2%, which was the largest increase since 2011.  At the wholesale level, bottlenecks, trade issues, and the early stages of a commodity super cycle are forcing pricing pressures.  These costs may take time but will be passed onto the consumer. 

US stocks are struggling for direction as investors are unsure if the unwind from growth is over and if the cyclical rotation has hit a wall.  The S&P 500 index is making a push for a new record high, while the Russell 2000 index is weakening alongside the Nasdaq. 

FX

The Canadian dollar got its groove back after the economy added 303,100 new jobs in March.  Canada’s fight against COVID is not going as well as their southern neighbors but this employment report shows the resilience of the economy. Canada is still facing a very serious third COVID wave, so restrictive measures won’t be going away anytime soon.

The unemployment rate improved from 8.2% to 7.5% alongside the participation rate half a percentage point increase to 65.2%.  The pullback in oil prices, Canada’s largest export, appears to be nearing its end and that should be another catalyst for further loonie strength. 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya