The Canadian dollar is sinking. USD/CAD support in the $1.3305-10 area crumbled overnight on the back of broad U.S. dollar demand. Traders are looking ahead to this morning’s U.S. employment data and expecting reliable results. Wednesday’s ADP employment report got the ball rolling when it reported 291,000 jobs were created in December, far above the forecast for an increase of 156,000. Even though the ADP data is an imperfect gauge of the nonfarm payroll (NFP) results, many traders and analysts upgraded their forecast for NFP from 165,000 at the beginning of the week to 202,000 today.
Canadian dollar vulnerability is exacerbated by the release of the Canadian Labour Force Survey. Job gains in December are expected to moderate to 15,000 from the downwardly revised 27,300 gain in December. The unemployment rate should be unchanged at 5.6%.
Weak Canadian data and roust U.S. data is a recipe for disaster for the Canadian dollar. If it occurs, USD/CAD will soar and test $1.3400 in the coming days.
The Canadian dollar continues to be weighed down by the Bank of Canada’s dovish monetary policy shift, two weeks ago. The BoC is concerned with downside risks to the economy due to lagging business investment and fears that the impact of trade wars may have had a more profound effect on growth than previously thought. The risk of a further slowdown from the effects of the coronavirus is another worry.
Overnight, Asia equity markets closed with mixed results, and European markets are in the red, while U.S. equity futures suggest a negative open. That will change following the NFP release. Reserve Bank of Australia Governor Philip Lowe warned that the coronavirus would have a more significant impact on the domestic economy than the SARS virus did. He indicated that although domestic rates wouldn’t be going higher any time soon, negative rates were even more unlikely. His comments weren’t new, but AUD/USD drifted lower alongside the rest of the G-10 major currencies.
USD/JPY traded defensively, overnight, dropping from 110.01 to 109.72. Profit-taking ahead of the NFP data and a dip in US Treasury yields weighed on the currency pair.
EUR/USD continued to trade with a negative bias following the break of support at 1.1000 yesterday. Weaker than expected German Industrial production data exacerbated the move lower. Prices continue to trade defensively on the back of contrasting monetary policy outlooks between the Fed and European Central Bank.
GBP/USD consolidated Thursday’s losses in a narrow $1.2923-$1.2945 range. Expectations for acrimonious trade negotiations between the UK and EU undermined prices. President Trump got into the act. He is reportedly furious that the U.K. gave Huawei access to its 5G network, which may have a bearing on future U.K/U.S. trade talks.
Canada Ivey PMI data and U.S. wholesale inventories are also on tap today.
