- US nonfarm payrolls expected at 200,000, Canada to gain 8,000
- Eurozone inflation cools to 9.2% in Dec (previous 10.1% y/y
- US dollar opens sharply higher compared to Thursday
USDCAD snapshot open 1.3629-33, overnight range 1.3540-1.3652, close 1.3570, WTI $74.07, Gold $1836.85
The Canadian dollar plunged following yesterday’s US ADP employment and the weekly jobless claims reports. It continued to lose ground overnight.
ADP Employment rose 235,000 in December, well above forecasts for a 135,000 gain while weekly jobless claims fell 21,000 to 204,000.
The news fueled a broad-based US dollar rally, knocked commodity prices lower and lifting the US 10-year Treasury yield to 3.784% from 3.683% in Asia.
USDCAD soared from 1.3472 to 1.3594, then continued to climb overnight, reaching 1.3652 in NY trading.
USDCAD is underpinned by speculation Bank of Canada rate hikes will lag those of the Fed, and today’s Canadian employment data will not change that view. Full employment is part of the Fed’s mandate, not the BoC’s.
Canada is expected to have gained just 8,000 jobs in December with the unemployment rate rising to 5.2% from 5.1%. The results will be overshadowed by the US data.
Today’s US nonfarm payrolls report is the main event.
Analysts are predicting 200,000 new jobs in December. Many suggest the risks to that result are to the upside, following yesterday’s ADP data. A higher-than-expected result will lead to another bout of US dollar strength while weaker than expected data will reverse the US dollars recent gains.
The Fed may be paying closer attention to employment reports due to the impact of rising wages and tight employment markets on inflation.
The FOMC minutes suggested as much. They noted, “Participants noted that, in the latest inflation data, the pace of increase for prices of core services excluding shelter—which represents the largest component of core PCE price inflation—was high. They also remarked that this component of inflation has tended to be closely linked to nominal wage growth and therefore would likely remain persistently elevated if the labor market remained very tight.
EURUSD consolidated yesterday’s losses in a 1.0484-1.0536 range. The single currency did not get much support from lower-than-expected Eurozone inflation data (actual 9.2% vs forecast 9.7%, November 10.1%) as the drop was due to lower energy prices and expected.
GBPUSD traded with a negative bias in a 1.1843-1.1934 range due to broad-based US dollar demand and ongoing concerns about the severity of the UK recession.
USDJPY rallied to 134.59 from 133.28 due to higher US Treasury yields. The 10-year Treasury yield rose to 3.79% from 3.68% yesterday.
AUDUSD traded in a 0.6726-0.6787 range. Prices were supported by news China placed its first order for coal in two years.
US ISM Services and Factory orders are due.
