CAD: Bulls are not discouraged


CADJPY rebounded from PP level to 84.30 with resistance holding at 84.40. USDCAD slid to 3-week lows of 1.3093 from near 1.3135 after the mix of data, before quickly turning higher, topping so far at 1.3147 highs. The Canada jobs report was better than expected, though the trade deficit was wider than forecast. Softer oil prices and NAFTA uncertainty will keep USDCAD downside contained.

As stated earlier today: “On the downside, if he pair remains today around or below the 61.8% Fibonacci retracement level at 1.3130, then bears are still in control. A break of the 1.3050 Support could lead to a swing lower to the next Support levels at 50-day MA and 200-day MA, at 1.2920 and 1.2775 respectively.”

Canada’s trade deficit widened to C$2.8 bln in May from the -C$1.9 bln shortfall in April. Export values dipped 0.1% (m/m, sa) while import grew 1.7%.  Canada employment grew 31.8k in June after the 7.5k decline in May, overshooting expectations for a smaller gain. Full time employment rose 9.1k following the 31.0k drop in May. The unemployment rate rose to 6.0% from the 40-year low of 5.8% seen in May. The rise in the jobless rate is a bit disappointing, but not really shocking given that the firm job market was bound to draw in more workers.

The gain in total jobs was solid, albeit driven by part-time hiring, while wage growth remained elevated as minimum wage hikes underpinned. This report, while not with out its caveats, will not be a barrier to a rate hike from the BoC next week.

BoC Outlook: the June jobs gain underpins the call for a 25 bps hike next week, as the firm 31.8k rise contrasts with the modest declines in April and May. The jump in the unemployment rate to 6.0% from 5.8% came as more people entered the (strong) labour market, which has been the ongoing risk with this measure for some time now. The degree of widening in the trade deficit with exports merely flat following gains in February, March and April, could lead the Bank to take the report in stride. Of course, with the impact of tariffs on the domestic and global economy a large unknown, not to mention the ongoing evolution of the housing market, the announcement and Monetary Policy Report should be consistent with a continued gradual pace of accommodation removal this year and next.


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Andria Pichidi

Market Analyst


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