USD/CAD – Loonie Erases January Losses Ahead of Employment Data

The Canadian dollar rallied versus its American counterpart on Thursday as disappointing data continues to hurt the USD. U.S. unemployment claims recording a rise of 8,000 applications for 285,000 last week when only 2,000 was forecasted. The rise in the number of claims joins both purchasing managers indices (PMI) manufacturing and non-manufacturing, which are leading indicators of economic health, coming in below expectations.

The USD tumble despite oil prices falling around 1.6 percent combined to boost the CAD to trade below 1.38. Comments from U.S. Federal Reserve voting member William Dudley about the decay of global financial conditions putting into question a March rate hike from the central bank. After a historic rate hike back in December macro conditions have shifted dramatically and the 4 rate hikes forecasted by the Fed look unlikely.

The USD/CAD depreciated 0.32 percent in the last 24 hours. The currency pair had a volatile day of trading with a 1.16 percent difference between the daily high and low price levels. The loonie managed to remain under 1.38 and will be awaiting the results of Canadian and American employment data to be published on Friday morning.

The market will be obsessing on the NFP numbers given the potential implications, but Canadian numbers will play a big part on how the loonie ends the week. After a strong December Canadian jobs are expected to slow down, but keeping the unemployment rate steady at 7.1 percent. The loonie’s recovery after a horrendous January will validate the decision from Bank of Canada (BoC) Governor Stephen Poloz who held rates unchanged despite some market participants pushing for a rate cut after the rapid fall in oil prices and the loonie.

The U.S. non farm payrolls (NFP) have been heavily correlated with the ADP private payrolls numbers in the past three months. The ADP beat expectations slightly on Wednesday, February 3 with 205,000 new jobs added to the economy. The forecast for the NFP are a more conservative 189,000 jobs considering the massive 292,000 posted last month. The other factor at play this week was the rise of unemployment claims by 8,000 that marks a trend of rising claims since the second week of December. If there is a chink in the employment numbers it can further question the probability of a rate hike by the Fed sooner rather than later and the USD would fall as a result.

CAD events to watch this week:

Friday, February 5
8:30am CAD Employment Change
8:30am CAD Trade Balance
8:30am CAD Unemployment RateUSD
8:30am USD Non-Farm Employment Change
8:30am USD Trade Balance
8:30am USD Unemployment Rate

*All times EST