Loonie at Parity? Getting very close

Amazing employment figures warmed the hearts of Canadian policymakers and sent USD/CAD tumbling down. Is the Canadian dollar going to be in parity with the US dollar?

Excellent data

We have a second major surprise this week. After the RBA raised the interest rates, Canada’s employment data was much much better than expectations. Economists were predicting a rise of the unemployment rate from 8.7% to 8.8%. The near history showed that they more too pessimistic in previous releases.

But a drop to 8.4% was not expected by anyone. This is a huge improvement in the job market and in the whole economy.

The accompanying figure, the employment change, was also superb: 30,600 jobs were added, more than 6 times the expectations. Looking back at last month’s 27.1K new jobs, this rise isn’t such a big surprise as the whopping unemployment rate.

Gap in the chart and the road ahead

The reaction in the forex market was instant: USD/CAD fell from a range of 1.0520-40 to 1.0480, and created a hole in the chart. USD/CAD continued tumbling down to 1.0423. USD/CAD now trades at 1.0430.

USD/CAD is at its lowest point in over a year. The last time it was at these levels was during the outbreak of the crisis.

Support for USD/CAD can be found at 1.0300, which was the support line just before USD/CAD took a flight upwards, this time last year. 1.03 also served as a resistance line in more than a few occasions during 2008, before the crisis. This critical level is also a round number.

USD/CAD Parity in 2009 is very possible now. On the other side of the border, the American economy is getting better, but is far from seeing new jobs added. Last week’s Non-Farm Payrolls disappointed and fell more than expected. A positive NFP doesn’t seem so close.

In Canada, it’s already a reality. Both employment figures today were very strong. The day is far from over: In both the US and Canada, trade balance figures are due soon. And near the end of the day, Canada releases the BOC Business Outlook Survey, which will give a broad view of the economy. With these employment figures, it’ll probably be more bright.

Further reading – USD/CAD Outlook.