Loonie post Friday’s gains


The record gain in employment and pull-back in the unemployment rate to a new record low in Friday’s November jobs report contrasted with Bank of Canada’s less optimistic outlook that debuted in the middle of last week.

To review, BoC’s announcement observed that “activity in Canada’s energy sector will likely be materially weaker than expected” and that “trade conflicts are weighing more heavily on global demand.” Governor Poloz, speaking Thursday, added to the dovish takeaway from the announcement, saying the current level of rates is appropriate for the time being and the data “have been on the disappointing side” since the October MPR. Yet, he did say rates will need to rise into the neutral range, and the pace of those rate increases remain decidedly data-dependent.

The November jobs report exceeded expectations by a sizable margin, in turn supportive of policy normalization. But the labour force survey is notoriously volatile from month to month – BoC uses alternative measure to judge labour market slack — and is hence not necessarily a game changer for policy. Indeed, more economic data is needed to offset other disappointing reports, notably Q3 GDP and September GDP.

For Loonie, the decline in US Treasury yields after Fed chair Powell affirmed a dovish shift in the policy outlook on Wednesday dented upside momentum in USDCAD, though the 33%+ decline in Oil prices since early October should keep the Canadian Dollar on an overall downward track.

In the forex market, the combined stellar Canada jobs report, the softer US employment outcome but more significantly the rebound, or at least steadying, in oil prices after OPEC agreed on a 1.2 mln barrel per day output cut, have fostered a corrected USDCAD.

USDCAD has settled near 1.3300, down from last week’s 18-month high at 1.3445. Despite the negative sentiment for a 2nd day, the asset remain within an upwards channel and above 20-day SMA , without looking overbought, based on momentum indicators.  RSI is currently flat but holds above 50 intraday, while MACD keeps increasing. Hence, the overall picture remains bullish.

The same stands intraday, as the pair is trading above the 200-period SMA for the 15th consecutive session in the 1-hour chart.  The pair has Resistance at 1.3340-1.3352, and Support at 1.3249-1.3265.

Another interesting pair is AUDCAD, which failed to form a bearish rounding top in the daily timeframe, as it rebounded today from a 0.9565 low. In the daily timeframe, the 20-day SMA is looking ready to cross above 200-day SMA, something that if confirmed, suggests the increase of the bullish momentum.

As the pair failed to reach the 18-day Support level and day’s S1 as well, at 0.9540, a retest of the 20-day SMA at 0.9630 is possible within the day, with immediate Support set at 0.9591.

However, in the medium term, only a closing today above this barrier (i.e. 0.9630) could imply the turn to a bullish outlook for the pair and therefore the continuation of the upside movement. This level reflects also the 50% retracement since Friday’s peak. Further gains could reach the next Resistance level at 0.9694.

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Andria Pichidi

Market Analyst


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