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  • USD/CAD trades close to lows of the day in the 1.2770s, despite disappointing Canadian labour market data.
  • Strength in crude oil prices, as well as an all-around risk on market vibe is also helping the loonie.

USD/CAD trades close to lows of the day in the 1.2770s, despite the release of a very disappointing Canadian labour market report for January. Indeed, the pair has instead taken its cue from USD weakness in wake of an underwhelming US January labour market report. Both were released at 13:30GMT, and since then, USD/CAD has dropped from around the 1.2800 mark to current levels, reversing a fleeting rally to post data highs of just under 1.2830.

Strength in crude oil prices, as well as an all-round risk on market vibe (US stocks look likely to post a fifth successive day of gains), is also likely contributing to the downside, as is the fact that Canadian trade data (released at the same time as the jobs report) was fairly upbeat. With the main event of the week (the labour market report) out of the way, USD/CAD volatility is likely to now start to die down as traders head for the exit ahead of the weekend.

Ugly Canadian Labour Market Report

The official Canadian Labour Market Report, released at 13:30GMT on Friday did not make for pleasant reading; the economy shed 212.8K jobs in January, more than fourfold expectations for a 47.5K decline in overall employment. Admittedly, this decline was driven by a massive drop in part-time employment and full-time employment actually gained, so the headline number is not quite as bad as it seems (full-time employment is seen as a better gauge of economic health). But the numbers just go to show the devastation dealt to the Canadian economy by the recent set of lockdown restrictions. Higher than expected job losses translated into the unemployment rate jumping to 9.4%, well above expectations for 8.9%. Meanwhile, the participation rate fell short of expectations for 64.9%, coming in at 64.7%.  

Capital Economics thinks that despite the drop in employment in January, an unexpected rise in hours worked will ensure that GDP will continue to expand at a MoM pace in January. Moreover, the economic consultancy thinks that “the strength of hiring in those sectors not affected by the lockdowns bodes well for the longer-term outlook”.

Downbeat US jobs report

In an immediate reaction to Friday’s US labour market report, spot silver saw a strength, though much of this was quickly pared back. As a recap; the US economy added 49K jobs in January, almost bang on consensus expectations according to Reuters, but a little below consensus according to Bloomberg. Somewhat disappointingly, however, most of these jobs added were in government employment (up 43K), not in the private sector (+6K). Surprisingly, the unemployment rate dropped to 6.3% from 6.7%, but this was in part driven by a drop in the participation rate to 61.4% from 61.5%. The U6 underemployment rate was 11.1%, down from 11.7%.

Meanwhile, Average Hourly Earnings continue to grow at a historically elevated pace, though these numbers are distorted by the disproportionately high level of job losses in lower-paying sectors of the economy (like hospitality and leisure) that have been more heavily impacted by the pandemic and lockdowns. All in all, not a great report, hence the minor strength seen in safe-haven precious metals markets; weaker data is better silver if 1) it takes some steam out of US dollar strength (which it appears to have done on Friday) and 2) it helps keep Fed policy ultra-accommodative for longer.

In terms of the big picture; does Friday’s labour market report change the outlook for US fiscal or monetary policy? Not really. A soft report will keep some pressure on Congress to act, which is arguably a positive for risk appetite. But they would be delivering more stimulus regardless. The Fed, meanwhile, are still a long way off from thinking about tightening.

Strong Canadian International Trade Data

Canadian Trade figures for December made for better reading; the country’s goods and services trade deficit dropped by more than expected to CAD -1.67B from CAD -3.56B in November, driven by an increase in exports and decrease in imports. “The rise in exports was primarily due to a 10% m/m jump in energy exports”, notes Capital Economics, which “mainly reflected higher prices”. However, the “latest US weekly petroleum report revealed that oil imports from Canada surged to a record high last week, so energy export volumes are now recovering strongly as well” they caveat.