The Canadian dollar traded sideways overnight and is sitting smack-dab in the middle of this week’s USD/CAD range of $1.2450-$1.2575. The Canadian dollar continues to track oil price movements, and broad U.S. dollar sentiment.
The Canada Labour Force Survey (LFS) to show a gain of 178,000 jobs in July, with the unemployment rate falling to 7.4% from 7.8%.
A combination of a soft NFP and a robust Canadian report will drive USD/CAD below $1.2450. However, if U.S. Non-Farm Payrolls (NFP) exceed one million, the Canadian numbers will be overshadowed and USD/CAD may rally to $1.2575.
The consensus forecast for U.S. July NFP is a gain of 870,000 jobs, a dip in the unemployment rate to 5.7% from 5.9%, and a 3.8% rise in average hourly earnings from 3.6% previously. If so, as per Federal Reserve Governor Christopher Waller, a repeat performance in August should be enough to start tapering.
The latest outbreak of the COVID-19 delta variant across the U.S. suggests a downside risk to NFP.
A strong report may not get Fed Chair Jerome Powell excited, and the focus will shift to Powell’s comments at the August 26-28 Jackson Hole Symposium.
FX markets were quiet overnight ahead. Spreading coronavirus cases in China and other parts of Asia, and dovish comments from Reserve Bank of Australia Governor Philip Lowe, failed to inspire activity because, with the pending NFP report, “nothing else matters.”
Wall Street closed at record highs, but Asia equity markets were less enthusiastic. Japan’s Nikkei 225 and Australian ASX index rose around 0.34%, but the main Chinese indexes underperformed. European bourses are roughly unchanged, while S&P 500 and DJIA futures are on the positive side of unchanged. WTI oil prices gained while gold inched lower. US 10-year Treasury yields are steady at 1.24%.
EUR/USD traded lower with weaker than expected German Industrial Production (actual -1.5% m/m vs forecast 0.5%) and forecasts for a strong NFP report weighing on prices. Strong U.S. employment brings the Fed closer to tapering, while the European Central Bank is committed to monetary stimulus for a long time.
GBP/USD didn’t get any support from yesterday’s Bank of England meeting. The Bank of England left monetary policy unchanged.
USD/JPY popped to an eight-day peak of 109.88, after testing 108.75 Wednesday. The rebound in US 10-year Treasury yields from 1.137% to 1.257% today, and hawkish comments from Fed officials, Clarida and Waller are behind the move.
AUDUSD dropped from 0.7405 to 0.7381 after dovish comments from RBA Governor Philip Lowe. The Governor warned of a double-dip recession due to current coronavirus lockdowns and restrictions. He also said he welcomed a lower AUD, then backtracked by stressing it wasn’t a target.
Canada Ivey Purchasing Managers Index is due at 10:00 am ET.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
