The Canadian dollar is grinding out gains as prices track broad US dollar moves against the G-10 majors. Friday’s Canadian employment report was better than expected but overshadowed by the U.S. non-farm payrolls data. USD/CAD bounced inside a $1.2435-$1.2478 range and traded similarly overnight.
Canada gained 31,200 jobs in October, which topped forecasts for a 19,200 gain. The unemployment rate dropped to 6.7% from 6.9%, which is better than its pre-pandemic level. Despite the result, FX traders focused on the US data.
The better than expected U.S. jobs data (actual 531,00 vs forecast 425,00) suggested that the employment picture may be stronger than the Fed expects, which means the Fed could be forced to raise interest rates ahead of schedule.
However, bond traders do not seem to agree. U.S. 10-year Treasury yields sank to 1.451% from 1.53% before inching higher to 1.48% overnight.
The drop in Treasury yields fueled U.S. dollar selling, and USD/CAD fell to $1.2438 in early New York trading this morning, with prices tracking broad U.S. dollar direction.
With the employment reports out of the picture, traders have turned their attention to Wednesday’s U.S. inflation report. The Consumer Price Index is expected to rise 5.3%, a tick below September’s 5.4% result. However, many analysts believe the risk is to the upside. A higher than expected result will reignite the argument that the Fed is "behind the curve" and that underlying inflation is well above target.
Even so, central bankers around the world continue to reiterate that inflation gains are "transitory." European Central Bank Chief Economist Phillip Lane said "We believe that next year bottlenecks will ease, and energy prices will decline or stabilize. This current period of inflation is very unusual, temporary, and not a sign of a chronic situation."
Bank of Canada Governor Tiff Macklem told a similar story but acknowledged that above-target CPI may last longer than expected. He also attempted to assuage fears that inflation would rise further. He said "I do want to assure Canadians that we are going to keep inflation under control. And we have the tools, we have the mandate, and we will be adjusting our tools to bring inflation back to target."
The major FX currency pairs drifted higher but inside well-defined ranges. GBP/USD outperformed rising from $1.3452 to $1.3549. Traders got over their disappointment from the BoE’s failure to hike rates last week and expect a December rate increase.
The U.S. and Canadian data calendars are empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
