Canadian Dollar Strengthens On Strong Employment Data

Canadian Dollar Strengthens On Strong Employment Data
June 10, 2019

 

The loonie gained ground Friday after the release of upbeat job data. In particular, the currency rallied against the greenback as the US employment data was worse than anticipated. In fact, the US dollar was the worst performing currency last week in the Forex market. Another reason for the greenback’s weakness is the increasing likelihood of a Fed rate cut. However, the US dollar may reverse trend due to the suspension of trade tariffs on Mexican goods.

Statistics Canada announced that the economy added 27,700 jobs in May, higher than the 5,000 anticipated by economists. The figures, however, were much below the 106,500 jobs added in April. Still, economists and think tanks are impressed that the market can add jobs even after a strong jump in April. Notably, most of the gains are from full-time jobs. Similarly, the unemployment rate declined from 5.7% to 5.4%. Analysts were pleasantly surprised as no change was expected.

In a separate release, Statistics Canada revealed a slight decline in the capacity utilization rate to 80.9% in 1Q19, from 81.8% in the fourth-quarter of 2018, reflecting the third successive decline. The reported figure was in line with analysts’ estimates.

In the US, the Bureau of Labor Statistics (BLS) reported that the US economy added just 75,000 jobs last month, missing analysts’ median estimate of 185,000. The government also downwardly revised its April jobs report from 263,000 to 224,000. Likewise, March’s gain was trimmed from 189,000 to 153,000. Most of the employment-related activities took place in professional and business services and healthcare. The unemployment rate stood unchanged at a 49-year low of 3.6%. The average hourly wage increased only six cents to $27.83 per hour. However, the 12-month rate of hourly wage gains declined from 3.2% to 3.1%.

Following the weak economic data, the US dollar plunged on worries over a possible economic slowdown. If the trend continues, then the Fed may opt to slash interest rates to boost economic growth. As per the latest minutes of the FOMC (Federal Open Market Committee) meeting, Fed Chair Jerome Powell has shown openness towards slashing interest rates. St. Louis Fed Bank President James Bullard has argued that a rate cut may be required due to low inflation and trade spat with China. The market has already started betting that benchmark interest rates will be slashed to 2.25%, from 2.50% by next month. CME Group’s FedWatch tool data indicate that the market is forecasting a rate cut in July. Some speculators are expecting the interest rate to go down to as low as 1% by December.

The import duty announced early last week on Mexican goods made investors ponder the likely negative impact it could have on the US economy and whether it will encourage the US Fed to announce a rate cut. The weak nonfarm payrolls data strengthened the market’s expectation of a rate cut. However, Trump’s decision to indefinitely suspend the import duty on Mexican goods has once again made the participants think whether there will be any new twist on Fed’s plans.

Even though the economic data favors strengthening of the Canadian dollar, the suspension of import duty on Mexican goods may cause a trend reversal in the USD/CAD pair in the week ahead.

Technically, the USD/CAD pair broke several support levels last week. The next major support is anticipated only at 1.3080. The currency pair is also trading below its 50-day moving average. Additionally, the momentum indicator is making new lows. As a result, we can expect the currency pair to remain bearish in the short-term.

CAD - technical analysis - 10 June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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