The Canadian dollar screeched higher Friday after the U.S. and Canadian employment reports were far weaker than expected. The move is counterintuitive, as rising job losses signal and faltering economy. But that was then, and this is now.
On Friday, analysts were expecting the U.S. non-farm payrolls report to show a gain of around one million new jobs. It didn’t happen. Non-farm payrolls rose 266,000 compared to expectations for a 978,000 increase.
At least America added jobs in April. Canada didn’t. Statistics Canada said 207,000 jobs disappeared. A poor report was expected due to the latest round of COVID-19 lockdowns and restrictions in many regions.
The weak Canadian data was totally ignored. Instead, traders focused on the U.S. report, which suggested the American economy was not in any danger of overheating. Perhaps Federal Reserve Chair Jerome Powell and colleagues are correct to leave monetary policy unchanged for the foreseeable futures.
The employment data drove the U.S. dollar lower against the major G-10 currencies, boosted commodity prices and sank US Treasury yields.
USD/CAD fell from $1.2190 before Friday’s U.S. and Canadian employment reports, closed at $1.2131, then extend losses to $1.2096 overnight.
The risk-on bias continued in Asia to start the week. The U,S, dollar extended its slide vs the majors, although equity markets did not stray to far from home. European bourses followed Asia’s lead and are trading close to flat. Wall Street may open with minor gains.
Oil prices rallied after the largest refined products pipeline in the U.S. was shut down because of a ransomware attack. The gains should be temporary. West Texas Intermediate (WTI), the North American benchmark price, is trading $65.46/barrel, supporting Canadian dollar gains.
The Canadian dollar is in demand. Analysts are forecasting a massive domestic economic driven by even higher commodity prices, domestic consumer demand, and widening Canadian and U.S. interest spreads in favour of Canada. The domestic currency will get an added boost from spillover effects from U.S. stimulus spending.
GBP/USD blasted through resistance at $1.4010 after elections in Scotland. The Scottish National party fell one seat short of a majority, which reduced the risk of another Scottish independence referendum. GBPUSD sentiment is bullish above $1.3975, looking for a move to $1.4250.
EUR/USD is consolidating post-NFP gains in a $1.2138-$1.2176 range. European Central Bank Chief Economist Philip Lane suggested the ECB will discuss tapering at the June meeting: "We can increase or decrease our purchases depending on what is necessary to keep financing conditions favourable."
AUD/USD and NZD/USD rallied due to the broad U.S. dollar weakness, with AUD/USD getting an added boost from steady to firm economic data.
There are not any notable economic reports available today.
