The Canadian failed to garner much of a benefit from the far stronger-than-expected Canadian employment report released on Friday. Canada added 55,900 new jobs in February, well above the 5,000 predicted. At the same time, U.S. non-farm payrolls (NFP) report was disappointed traders. The U.S. was expected to add 180,000 new jobs, but instead, only managed to gain 20,000.
The FX market reaction to both sets of data was underwhelming. The Bank of Canada (BoC) is not concerned with domestic employment at the moment as that figure has been rather robust. It is fixated on a slowdown in the global economy due to ongoing trade tensions and concerns that U.S. economic growth is moderating. The BoC is also concerned about domestic growth because the Q4 slowdown was worse than had been expected. The bank said that it would take time to gauge the persistence of below-potential growth and the latest employment data won’t change that outlook.
Although the NFP report was far weaker than expected, it followed a far stronger than expected January data. The three-month average for gains is 186,000 which is still solid. Weather and the government shutdown may have also impacted the data. Its impact on FX markets was also marginal because the Federal Reserve will not be raising interest rates anytime soon. Fed Chair Jerome Powell repeated the Fed’s cautious stance in a speech on Friday. He said inflation is still expected to run below the Fed’s objective because of declines in energy prices. He also said that he had seen "cross-currents" in recent months and that with "nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures, the Committee has adopted a patient, wait-and-see approach."
The Canadian dollar rallied on the combination of the two employment reports, but it closed well above its best levels. The overnight price action was subdued, and the currency opened unchanged in Toronto this morning. That was a similar price action for the rest of the G-10 majors. They posted small gains at the close on Friday, and most of them opened where they closed. The British pound was the exception.
GBP/USD gapped lower at the open in Asia, weighed down by negative Brexit news. Prices rebounded by the Toronto open with traders on full alert for this week's major political developments.
Prime Minister Theresa May is holding votes on three consecutive days starting tomorrow. The first vote is to accept or reject her Brexit plan. It was rejected earlier by a considerable margin, so she is expected to lose this vote. The next vote is on whether they accept the risk of a no-deal Brexit. If they decide not to risk a no deal Brexit, the third vote is to ask for an extension. GBP/USD risks will be a major focus and put a damper on trading for the rest of the G-10 currencies.
U.S. Retail data is due this morning and forecast to rebound from December’s weak result.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
