The optimism over strong economic recovery post-COVID-19 got a boost in Canada on Friday with another far stronger than expected jobs report. Economists at MUFG Bank see the current backdrop as broadly favourable for the Canadian dollar.
See: USD/CAD: Loonie to run a downhill in the second half of the year – CIBC
Loonie’s fundamentals still positive as job gains continue
“The Canada gain in employment in February and March combined is equivalent to a 4.5mn gain in US employment (US jobs market is 8 times larger). The data is bound to help provide the Bank of Canada with confidence over the outlook for growth when they meet to decide on monetary policy next Wednesday.”
“Ontario entered a phase of tighter restrictions on 8th April that will likely see some of this positive momentum disappear. Canada’s 7-day average of daily COVID-19 infections hit a peak of 7,800 over the weekend, just below the record peak recorded in early January. According to Our World in Data, Canada’s vaccination rate stands at 20.7%, slightly behind key countries in the EU and there has been a 25% increase in covid ICU patients from 28th March to 5th April underlining the escalating 3rd wave now underway.”
“The COVID-19 situation will undoubtedly make the BoC somewhat cautious when it meets next week but will also embolden the government to push ahead with additional fiscal stimulus when it announces its budget on 19th April – two days before the BoC meets. Further fiscal stimulus and concerns over the indebtedness in the housing market plus the surge in jobs will likely be enough to result in the BoC signalling some degree of slowing in sovereign bond purchases.”
“We see the current backdrop as broadly favourable for CAD. It has underperformed since the start of April after being the top G10 performer in Q1. We do not see a change in the fundamentals that helped CAD performance in Q1 and hence do not expect the current underperformance to persist.”
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