The Canadian dollar is starting the week on a firm note. Friday’s domestic employment report didn’t do anything to prevent the Bank of Canada from promising an interest-rate hike for Wednesday. In fact, it may have encouraged the central bank. Statistics Canada reported 31,900 new jobs were created in June, fully erasing the April and May declines. Nevertheless, it wasn’t all "sunshine and unicorns." Most of the job gains were part-time, and the unemployment rate rose to 6.0% from 5.8%. Some economists have attributed the rise in the unemployment rate to "more people looking for work," which is one of those impossible-to-prove statistics.
The domestic data wasn’t enough to boost the Canadian dollar by itself. It needed help and got it from what many believe was a disappointing U.S. employment report. Non-Farm payrolls rose 213,000 in June, beating the forecast for a 195,000 increase. However, the unemployment rate rose, and average hourly earnings declined, leading to broad U.S. dollar selling.
U.S. dollar selling continued overnight, led by a rally in the British pound. GBP/USD gapped to $1.3315 from Friday’s close of $1.3287 when trading opened in Asia. News that U.K. Prime Minister Theresa May succeeded in getting her cabinet to sign off on a Brexit negotiating proposal was viewed as a positive sign for the Queen’s currency.
It was also good news for the Canadian dollar. The loonie inched higher on broadly bearish U.S. dollar sentiment. Risk-aversion trades that were placed ahead of the weekend were unwound when fresh China/U.S. trade tensions failed to materialize.
Wednesday will be a big day for the Canadian dollar. In addition to the Bank of Canada policy statement, the Bank is also releasing its quarterly Monetary Policy Report which provides updated economic forecasts. Earlier, many traders were expecting the BoC to deliver a "dovish hike." They would raise interest rates 0.25% and then highlight potential economic growth risks which would necessitate that rates stay unchanged for some time. Last week’s economic data has changed that view. The Business Outlook Survey was optimistic. BoC Governor Stephen Poloz was optimistic, too. He said policymakers are "data dependent not headline dependent," meaning that the BoC would not be held hostage to rhetoric arising from trade tensions until the threats became tangible economic data.
The Canadian dollar is approaching a significant resistance zone in the $0.7660-$0.7720 area which may attract sellers. The interbank equivalent is $1.2950-$1.3050.
The economic data cupboard is bare, leaving FX traders to find direction from equities and headlines.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
