Canada: Wage growth disappointment continues – Nordea Markets

Sandeep Kanihama FXStreet Contributor

Analysts at Nordea Markets note that despite a continuously dropping unemployment rate, Canada’s monthly wage growth figure has disappointed for five straight months.

Key Quotes

“The yearly wage growth now yields 1.9% compared to 4% in May. For the records, this is the exact opposite trend of what is recorded elsewhere across G10. It wouldn’t be a big issue for the BoC if it wasn’t for the fact that wage growth has been an increasingly important explanatory factor for core inflation trends over the past years. Wage growth + FX effects now suggest a Canadian core inflation at 1.2-1.3% early 2019.”

“This is bad news for Bank of Canada bulls, as Stephen Poloz seems more obsessed with wage inflation than the combo of falling equity prices, lukewarm growth perspectives and lower oil prices. “Higher volatility and a re-calibration of equity prices do not point to a gloomy economic outlook by any means – rather, they are welcome symptoms of normalization.” Poloz is probably the most “Borio’ed” central banker out there.”

“But, Poloz recently also said that: “Given our outlook for growth and inflation, the Bank’s policy rate will need to rise to a neutral stance to achieve our inflation target.” Inflation hence matters way more than equity or market volatility and with the recent renewed wage growth disappointments in mind, it is hard to see any “upside risks” to that statement.”

“As is the case with NOK, the list of downside risks to the CAD has emerged swiftly in recent weeks. Looking at EUR/CAD versus the Crude oil 1 month earlier it looks tempting to long EUR/CAD into-year end. We though opt for the long EUR/NOK bet for now but close our short AUD/CAD position, as a consequence of the increased CAD risk picture.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

EUR/USD accelerates losses, focus is on 1.1800

EUR/USD’s selling pressure is gathering pace now, opening the door to a potential test of the key 1.1800 region sooner rather than later. The pair’s pullback comes on the back of marked gains in the US Dollar following US data releases and the publication of the FOMC Minutes later in the day.

GBP/USD turns negative near 1.3540

GBP/USD reverses its initial upside momentum and is now adding to previous declines, revisiting at the same time the 1.3540 region on Wednesday. Cable’s downtick comes on the back of decent gains in the Greenback and easing UK inflation figures, which seem to have reinforced the case for a BoE rate cut in March.

Gold picks pace, flirts with $5,000

Gold is back on the front foot on Wednesday, shaking off part of the early week softness and pushing higher towards the key $5,000 mark per troy ounce. The move comes ahead of the FOMC Minutes and is unfolding despite an intense rebound in the US Dollar.

Fed Minutes to shed light on January hold decision amid hawkish rate outlook

The Minutes of the Fed’s January 27-28 monetary policy meeting will be published today. Details of discussions on the decision to leave the policy rate unchanged will be scrutinized by investors.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Sui extends sideways action ahead of Grayscale’s GSUI ETF launch

Sui is extending its downtrend for the second consecutive day, trading at 0.95 at the time of writing on Wednesday. The Layer-1 token is down over 16% in February and approximately 34% from the start of the year, aligning with the overall bearish sentiment across the crypto market.