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By xemarketanalysis December 7, 2018 10:21 am
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    Xe Market Analysis: Canadian Loonie Gets Wings After Strong Jobs Report Card

    OVERVIEW

    • The CAD moves above 0.7500 handle with the unemployment rate at its lowest level since 1976
    • The Dollar Index trading flat as the market continues to digest non-farm payroll data: +155k versus an estimate of 198k. 
    • Sterling is trading with negative bias ahead of key vote in Parliament.
    • NYMEX WTI Crude advances $2.50 today after news broke that OPEC has agreed on a larger-than-expected production output cut.

    HIGHLIGHT

    The Canadian Dollar jumped above the 0.75 handle after a strong job data report from a Labour Force Survey. The 94k new jobs easily beat market estimates of 10k. The rate of unemployment dropped 0.2 percentage point to 5.6%, the lowest reading since 1976. The latest data supported by gains in full-time work surprised the market. We expect the loonie to enjoy the recent spike, backed by output cut announced by the OPEC members. 

    US DOLLAR

    The Greenback is trading relatively flat against the traditional basket of G-10 currencies this morning. The market is digesting an incoming US jobs report: Non-farm payrolls increased by 155k, wage gains misses estimates and unemployment rate remains stable at 3.7%. NYMEX WTI is clinging to gains, up 1.80% on the day and waits for OPEC production cut decision. Safe haven currency the Japanese Yen is soft, and equity markets are in positive territory with the US and China signaling positive trade talks. Investors are closely watching the ongoing Parliamentary debate on the UK’s withdrawal plan, and we expect turbulent times ahead for the Pound.

     

    BRITISH POUND

    The Sterling is trading with a firm footing this morning, up 0.3% against the US dollar. IHS Markit/CIPS UK Construction Index rose to 53.4 in November, up from 53.2 in October, recording the most substantial rate of business activity expansion since July. The rate of job creation was also the fastest since December 2015. However, confidence remains subdued due to Brexit-related uncertainty. The MPs started the debate on EU Withdrawal agreement today and will continue to do so for the next five days, culminating with a meaningful vote (Tuesday 11th). GBP/USD is set to see volatile sessions as noises around Brexit make their way into the market.

     

    EURO

    The common currency is trading in a tight range within a consolidation zone. Investors are unwilling to commit to any directional moves over political concerns in the Old Continent. In Germany, the CDU will be picking a new leader replacing Merkel and Italy is still working on a budget to meet EC’s requirement. US job numbers will be the primary driver as market conveniently ignored lower German industrial production data.

     

    CANADIAN DOLLAR

    The Canadian economy added 94kk jobs in November, led by full-time work in a surprising report by Statistics Canada. The unemployment rate falls to a 42-year old low, at 5.6%. Bank of Canada Governor Stephen Poloz believes the economy is operating near its capacity. However, it is now facing new headwinds as an environment of low rates has led to dangerously high level of household debt (mortgages). The bank believes that will impact their future monetary policy decisions. Bank has raised key policy rate five times (total 125 basis points) over the 1 ½ year and will be heavily dependent on incoming data.

     

    AUSTRALIAN DOLLAR

    AUD/USD is set to close the week in reversal mod after touching a high near 0.7400. The pair is driven by ongoing talks between China and the US and there hope these two trading nations can find common ground before the 90-day period. 

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