- CAD is a loaded currency with trade wars, economy, commodities, central bank divergence.
- Canadian Wage growth surges to its fastest rates since 2009.
USD/CAD has been correcting since the daily highs of the 1.3340’s. Today, however, the price has travelled back to the upside between 1.3197 and 1.3250 as the Dollar finally catches a traditional safe-haven bid as investors look for yield.
The Canadian Dollar is a loaded case at the moment, with the trade war risks mounting up, commodities under pressure and a central bank that may just start to shift towards a more dovish rhetoric likely to play havoc on positons based on a neutral central bank tone last communicated at the Boc’s July meeting. However, the central bank put greater emphasis on trade tensions and slowing global growth, raising the odds that its next move will be to lower rates. Indeed, weakening private-sector employment at a time of heightened trade tensions and falling commodity prices is not a great story for the Loonie.
Canadian mixed jobs data
The latest data from Canada was in the jobs sector. We got a fantastic wage number, but the sector as a whole is deteriorating. The July Canadian jobs report saw employment falling for the second month in a row (-24,200) and the unemployment rate was rising to 5.7%. However, wage growth surged to its fastest rates since 2009.
“Low unemployment, rising wages and inflation close to target means there is less scope for major policy easing relative to competitors, which is CAD supportive,”
analysts at ING Bank argued.
“The market is looking for a 25bp rate cut in around 6M and if trade tensions persist we could well see Canada pull the trigger in December. As Charles Evans at the Chicago Fed suggested yesterday when other central banks are easing it makes you think maybe you should too – food for thought for the BoC.”
As for positioning, CAD net long positions had recovered a little ground after the sharp drop the previous week, perhaps in anticipation of a neutral BoC. AUD/CAD and NZD/CAD have continued to crumble as an evident central bank play while concerns about world and Chinese growth increase – The AUD’s role as a proxy for confidence in China suggests scope for additional pressure if trade tensions worsen.
Risks of modest BoC rate cut is rising
“The jobs figures are a little concerning. Given the latest ratcheting up of trade tensions, which Canada is heavily exposed to, and the plunge in commodity prices (oil in particular) it looks as though we could get a renewed softening in Canadian growth through 4Q19 and 1Q20,” analysts at ING Bank argued.
“The BoC has been dead silent since the July MPR, leaving markets to interpret incoming data amid a dimming global outlook. While data has been surprisingly robust-Q2 GDP tracking has firmed to 3% from 2.8% in mid-July (BoC: 2.3%) – this is unlikely to placate those concerned by the recent escalation in trade tensions, suggesting a more cautious tone in September,” analysts at TD Securities explained.
USD/CAD levels
The pair persists in a steep ascending trend and is vulnerable to a downside correction below trend-line support below the 1.32 handle. On the upside, a break back above the 50% Fibo around 1.3290 with a close opens risks to a continuation with a target of the 1.3450 level, just above the mid-June swing high peak.
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