Sat. Nov 27th, 2021
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    Canadian Jobs Preview: Erratic figures set to shape USD/CAD’s battle with 1.20

    Canada is expected to report a loss of around 20,000 jobs in May.Wild swings in data open the door to an upside surprise. The figures – alongside US Nonfarm Payrolls – are critical for USD/CAD’s battle over 1.20.

    How low can USD/CAD go? The currency pair has already hit the lowest since May 2015, but there might be more in store. The Canadian dollar has been benefiting from rising oil prices, hopes for a robust recovery in the US – Canada’s critical trade partner – but what about the local labor market?

    Despite advances in its vaccination campaign, Canada suffered a new wave of COVID-19 cases earlier in the year, resulting in local lockdowns. That is the main explanation for the loss of 207,100 jobs in April. Another reason for the massive labor destruction comes from previous gains – that nation saw an accumulated increase of 562,300 positions in February and March.

    The chart below shows the pre-crisis calm and the wild changes afterward:

    Source: FXStreet 

    The immunization campaign’s pickup and better weather have since contributed to a sharp drop in cases, which led to the easing of restrictions.

    This improvement reflected below, implies that Canada may have gained jobs rather than lost them last month.

    Source: FT

    If the assumption above proves correct and a plus sign accompanies the Employment Change figure, the Canadian dollar has room to rise. However, for a meaningful move in USD/CAD, there are additional components to consider.

    First and foremost, US Nonfarm Payrolls – America’s labor statistics are published at the same time, and they tend to have the upper hand in rocking markets. A big beat in the US could push Dollar/CAD higher even if Canada’s labor market springs back. Conversely, a disappointing employment number up north could still be followed by a drop in USD/CAD if the NFP misses for a second consecutive time. 

    The second factor is oil prices, which have been marching higher and keeping the loonie bid. However, an OPEC+ decision to increase the output of the black gold – and consequent market reactions – could also rattle the C$.

    Third, technical positioning is critical. At the time of writing, USD/CAD dipped below the 2017 low of 1.2060 but maintains a safe distance from the round 1.20 level. It is safe to assume that traders have positioned themselves around this psychological barrier. Will a move below 1.20 result in an avalanche or will be firmly rejected? One thing looks certain – volatility is set to be high. 

    The USD/CAD monthly chart shows that 1.1920 is the next defense before a potential plunge to 1.13. In general, 1.20 is critical battle line.

    Conclusion

    Canada is recovering and another month of job losses seems pessimistic. A potential upside surprise in labor figures is only one of several factors moving USD/CAD amid its battle around 1.20. 

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    USD/CAD – Canadian Dollar Stagnates

    The Canadian dollar stagnated overnight, as did the rest of the G-10 major currencies. The U.K. and U.S. are closed today for the Spring Bank Holiday and Memorial Day, respectively. Those regions represent close to two-thirds of the daily FX turnover, which explains the narrow ranges.

    The Chinese yuan was a big mover, reaching levels last seen in 2018. USD/CNY dropped from 6.5764 on March 31 to 6.3718 today. Chinese authorities are taking note. The People’s Bank of China raised the FX reserve requirement for financial institutions to 7% from 5%, effective June 15.

    A former PBoC official said the yuan strength may signal short-term speculation. He said, “We will prevent short-term money flooding from pushing up the yuan and diminishing the competitiveness of export firms.”

    However, other analysts suggested, the strong currency is partially offsetting rising inflationary pressures from higher commodity prices.

    Traders largely ignored Chinese economic reports. May Non-Manufacturing Purchasing Managers Index was 55.2 vs forecast 52.7, and Manufacturing PMI ticked down to 51 from 51.1 in April.

    The Organization for Economic Cooperation and Development raised its 2021 forecast for global economic growth to 5.8% from 4.2% in December. They predict 2022 growth at 4.2%, which if it occurs, would return the global economy to pre-pandemic levels. They warned that the biggest risk to the recovery was failing to provide adequate vaccines to emerging and low income countries.

    Canada March Gross Domestic Product data is released Tuesday. It is forecast to rise 0.9%, a tad slower than the 1.1% rise in February, due to Canada experiencing a third-wave coronavirus outbreak. The results will likely be ignored as traders are looking ahead to a robust, post-pandemic economic recovery in Canada.

    The drop in USD/CNY helped underpin EUR/USD. The single currency traded in a $1.2184-$1.2203 range. There were not any economic reports of note. EUR/USD technicals are bullish and looking for another test of $1.2250.

    The Canadian dollar is rangebound. USD/CAD is stuck in a $1.2040-$1.2140 band, albeit with a negative bias. Rising oil prices are supporting the Canadian dollar.

    West Texas Intermediate rose to $67.29 a barrel overnight because of expectations that improving global economic growth will increase demand for crude.

    Today’s Canadian data includes Raw Materials Price Index, Industrial Production, and Current Account.

    Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.

    Canadian dollar – Wikipedia

    USD/CAD: US Dollar – Canadian Dollar Rate, Chart & Analysis (dailyfx.com)

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