USD/CAD Loonie Lower as USD Rally Shakes Off ADP Miss

The USD continued its rampant advance versus the CAD on Wednesday. The private payroll processor ADP reported its non-farm employment change at a below expectations 156,000 new jobs added. This is the smallest gain since April 2013 and raises concerns about the U.S. economy as employment has been the strongest pillar of recovery. There was also a downward revision of 9,000 in the March jobs report. The manufacturing sector cut 13,000 jobs while the service sector continued to drive job growth with 166,000 new positions. The ADP disappointment now raises the stakes for the U.S. non farm payrolls (NFP) due on Friday. Economists are forecasting a 205,000 new jobs and although there is a correlation between the ADP and the NFP it is not 1 to 1. The USD depreciated as the news hit the wires, but it regained its footing when the The Institute for Supply Management (ISM) non-manufacturing purchasing managers index data was released.

The CAD could not capitalize on the weak U.S. economic data as the Trade balance reported a record high deficit at 3.4 billion as exports dropped unexpectedly. The February trade data was also updated to show a larger deficit than originally reported at 2.5 billion. Canadian exports are now back to November figures and getting little support from a weaker loonie. The U.S. being Canada’s largest trading partner is a concern as the surplus was the lowest since 1993. The CAD depreciation accelerated with release of the ISM PMI.

The ISM beat expectations at 55.7. If the service sector is the backbone of private hiring as shown by the ADP earlier, it is also the driving force providing confidence. The employment index also rose proving more evidence of the strength of the sector. The comparison with Monday’s ISM Manufacturing PMI again outlines the divergence between services and manufacturing. The Manufacturing PMI underperformed at 50.8 barely above expansion while the non-manufacturing beat expectations and grew above forecasts.

Crude oil inventories in the U.S. surprised to the upside with 2.8 million barrels to a new record high. Gasoline inventories also were higher than expected as refineries ramped up production. The price of oil took a tumble losing more than a $1 but was able to recover towards the end of a the session. The Canadian dollar was not so fortunate and with good momentum from the USD and a weak crude price and negative data out of Canada the loonie was pressured downwards.

The USD/CAD rose 1.246 percent in the last 24 hours. The surge of the USD against the CAD continues at the pair is trading at 1.2872. The USD/CAD hasn’t been above 1.28 since April 18. The USD rally was not taken off track by the weaker than expected ADP private payrolls. The ADP report showed 156,000 new positions were added last month below the forecast of 196,000. The wider than expected deficit out of Canada and the higher crude inventories in the U.S. combined to drive the loonie lower.

The biggest shock of the day for the CAD was the trade data disappointment as it raises further questions about the state of the Canadian economy. The impact of the slowdown in the U.S. could bring the Bank of Canada back into action sooner rather than later. The two proactive rate cuts from 2015 could be joined by another one if the economy does not respond in the next two quarters to the fiscal stimulus unleashed by the Liberal government.

Canadian and American employment data will end the week on Friday. The spotlight sits squarely on the U.S. NFP, but a better than expected Canadian jobs report could stabilize a loonie in need of support to withstand the advance of the greenback.

CAD events to watch this week:

Thursday May 5
8:30am USD Unemployment Claims
Friday, May 6
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate

*All times EDT