Canadian Dollar: Data volatility guides Bank of Canada – Commerzbank

Commerzbank analysts Norman Liebke and Michael Pfister report that the Bank of Canada kept its policy rate at 2.25% but adopted a more hawkish tone as inflation risks rise from higher energy prices and trade tensions with the US. Weak July trade data and volatile labour market outcomes mean today’s Canadian jobs surprise could significantly influence CAD performance in the short term.

Trade weakness and jobs uncertainty

"On Wednesday, the Bank of Canada met and, as expected, left its policy rate unchanged at 2.25% for the seventh consecutive meeting. However, its tone was markedly more hawkish."

"Governor Tiff Macklem stressed that inflation remained too high and that upside risks had increased due to the conflict in the Middle East and the renewed escalation of the trade dispute with the US. In particular, higher energy prices could increasingly spill over into other goods and services."

"Furthermore, Canada’s August labour market data will be released today at 2:30pm (Central European Time). The Bloomberg consensus expects an increase of 15,000 jobs, but the consensus has often been in this range in recent months, while the actual figures have delivered substantial surprises in either direction."

"Last month, nearly 75,000 new jobs were created, significantly more than expected. Following the two fairly solid preceding months, this marked a continuation of the welcome recovery overall. Moreover, the number of survey respondents is usually only around 10 to 15, meaning that the consensus should be treated with caution."

"Despite these shortcomings, today’s data surprise is likely to play an important role. If the labour market once again surprises to the upside, the CAD should benefit as well. However, given that Canada’s labour market has been on something of a roller coaster in recent years and that the escalation in relations with the US is likely to have weighed on sentiment, weaker figures would hardly come as a surprise either."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)