The Canadian dollar was torpedoed on Friday. A surprisingly robust U.S. non-farm payrolls report combined with an extremely poor Canadian Labour Force survey blew the Canadian dollar out of the water. USD/CAD soared to $1.3267 from $1.3170 in a heartbeat.
Canada lost 71,200 jobs in November. Even worse, the unemployment rate soared to 5.9% from 5.5% in October. Some analysts suggested that the two consecutive soft employment reports will knock the Bank of Canada off its "steady" interest rate policy perch and lead to a rate cut in January. Other analysts scoff at the idea, saying that the poor results are a continuation of the "noise" from the October election.
The U.S. data is further validation for Federal Reserve Chair Jerome Powell and his colleagues who have adopted a "wait-and-see" approach to monetary policy. Powell said the U.S. economy was in a good place and that the glass was more than "half-full." The jobs data helps to ensure that Wednesday’s Federal Open Market Committee (FOMC) meeting results will be unchanged interest rates and therefore, a non-event.
FX markets got off to a mildly risk-averse start in Asia thanks to weaker than expected China trade data. China’s trade surplus narrowed sharply in November, led by a 1.1% y/y drop in exports. AUD/USD bore the brunt of the bad news and gave back all of Friday’s gains.
The lack of progress in the ongoing U.S./China trade talks was another negative factor. Hopes for a Phase 1 deal before the Americans raise tariffs again on December 15 are fading. U.S. officials said that a deal was close but added there were no plans for a face-to-face meeting with trade negotiators.
The risk aversion fears pressured USD/JPY, which fell from 108.65 to 108.44 when Toronto opened today. Lower U.S. Treasury yields and higher oil prices were other factors weighing on the currency pair.
The British pound was the best performing G-10 major currency compared to the G-10 major currencies. GBP/USD climbed to $1.3180 from $1.3129 on the strength of a series of U.S. election polls predicting a Conservative majority after Thursday’s election. Many analysts are concerned about the accuracy of the polls due to "strategic voting" and suggest that risk-reward favours a weaker GBP/USD from current levels.
Elsewhere, the Organization of the Petroleum Exporting Countries and Russia agreed to another 500,000 barrels/day on top of the existing 1,100,000-barrel/day production cuts to combat lower prices. Saudi Arabia sweetened the pot by adding another 400,000 to their share of the new cuts. West Texas Intermediate spike to $59.14/b in Asia but settle down to $58.65 in Toronto markets.
The only data available today is Canadian Housing Starts which won’t have an impact on trading.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
