- USD/CAD has bounced from earlier lows under 1.2750 and is back to multi-month highs around 1.2830.
- The move higher comes amid a broad deterioration in risk appetite.
- But a strong Canadian jobs report is helping the loonie outperform its risk-sensitive G10 peers.
USD/CAD spiked lower in the aftermath of the simultaneous US and Canadian labour market data release at 1330GMT, with the pair briefly dipping below the 1.2750 level, but has since reversed sharply higher. The pair is now trading back at multi-month highs in the 1.2830 area, having nearly hit 1.2850, with gains of around 0.2% on the day. The loonie continues to trade within the confines of a bullish trend channel, which suggests the path of least resistance remains to the upside.
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Risk appetite deteriorates
The retracement higher from early session lows comes amid a broad downturn in risk appetite since the US open that has seen both stocks and oil markets sell-off in unison. No one theme is weighing on risk appetite, but traders are citing continued uncertainty regarding Omicron and further hawkish rhetoric from Fed members (this time from FOMC’s James Bullard) in wake of the US jobs report. For reference, the headline November NFP number was much weaker than expected, but the household survey showed the unemployment rate dropping more than expected to 4.2% and the participation rate ticking higher. Most analysts interpreted the report as in fitting with the theme of an already tight and still improving US labour market.
But CAD holds up well
The risk appetite downturn has done the most damage to risk-sensitive AUD, NZD, NOK, and SEK, which are between 0.8-1.2% lower on the session. The loonie is doing comparatively better likely because the November Canadian jobs report was much stronger than expected. The economy added more than 150K jobs, nearly 80K of which were in full-time employment, on the month, well above expectations for a 35K gain. Meanwhile, the unemployment rate sank to 6.0% versus expectations for a much more modest drop to 6.6% from 6.7% in October. The report will boost expectations for the BoC to turn more hawkish in the coming weeks and stay decisively ahead of the Fed in terms of monetary tightening.
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