- Canada expected to have gained 13,5000 jobs in December.
- Focus is on US nonfarm payrolls (forecast 170,000).
- US dollar opens higher against all G-10 majors.
USDCAD: open 1.3371-75, overnight range 1.3346-1.3381, close 1.3349, WTI $72.62, Gold, $2040.16
The Canadian dollar continues to sink. Better than expected US employment reports yesterday forced traders to reassess the magnitude of Fed rate cuts that they expect this year. That re-evaluation came at a time when market liquidity is still below normal due to extended Christmas breaks, and when the US dollar appeared to be very oversold.
JOLTS job openings, Challenger job cuts, and weekly jobless claims data pointed to a more robust US labor environment than what was anticipated, which also suggested the Fed may keep rates at elevated levels for longer than expected. If today's nonfarm payrolls report (forecast is for a gain of 170,000) is stronger than expected, US dollar bears and stock market bulls will be in for a rough ride.
The Canadian employment report may be overshadowed by the US data. Canada is expected to have added 13,500 jobs in December compared to 24,900 in November. However, it will be the average hourly wages component that drives the Canadian dollar. Wages rose 5.0% y/y in November and if today's result is the same or higher, the Bank of Canada could be pressured into raising rates. They won’t, of course, but it would certainly put a damper on rate cut expectations.
The Canadian dollar is seeing a little pressure from stubbornly soft West Texas Intermediate (WTI) oil prices. Crude could not rally very far following news that US inventories fell 5.5 million barrels in the week ending December 29, or from increased threats to supply from Middle East tensions.
EURUSD is on the defensive in a 1.0903-1.0956 range despite higher than expected inflation data. Eurozone inflation rose to 2.9% from 2.4% y/y in November. The results make it a more difficult decision for ECB officials that are contemplating rate cuts.
GBPUSD traded in a 1.2651-1.2696 range overnight. Initial support from higher housing price data quickly faded ahead of today's US employment report.
USDJPY rose from 144.55 to 145.38, due to a jump in the US 10-year Treasury yield to 4.044% from yesterday's Asian low of 3.92%.
AUDUSD dropped to 0.6676 from 0.6719 due to poor risk sentiment and ongoing Chinese growth concerns.
Today's data also includes US ISM Services PMI and Factory Orders.
