Canada added 55,900 jobs in February led by a gain of 67,400 full-time jobs. It was the second consecutive month of stellar full-time job increases. USDCAD plunged from a pre-release level of 1.3450 to 1.3392 immediately afterwards.
The USDCAD losses may not be sustained. The Bank of Canada (BoC) is less concerned about domestic employment than it is with the sharper and more broad-based weakness seen in Q4 2018. Deputy Governor Lynn Patterson followed up Wednesday’s dovish monetary policy statement with a speech in Hamilton yesterday. She attributed some of the domestic slowdown to on-going trade tensions between the US and China. The BoC believes that the Canadian economy will weaker in the first half of 2019 than they predicted in January and will take time to “gauge the persistence of below-potential growth and the implications for the inflation outlook.” That USDCAD drop following the employment data was a buying opportunity provided prices stay above the 1.3365-80 area.
US nonfarm payrolls rose a mere 20,000, well below the 180,00 forecast and last months 304,000 gain. Any disappointment was mollified by a rise in average weekly earnings to 3.4% from 3.1% in January. The US dollar reaction fell modestly on the news, but like Canada, the focus is on the Fed’s inflation outlook.
China was the story overnight. China posted “butt-ugly” trade numbers and sent global markets into a tizzy. China said February exports plunged 16.6% m/m while the trade surplus shrank to just $4.12 billion (forecast $26.36 bio, previous $39.1 bio)
China’s Shanghai Shenzhen 300 index plunged 3.97% taking other Asia indices down with it. The largest stock brokerage in China issued a sell order on Peoples Insurance Company (Group), saying it was “significantly overvalued.” Traders interpreted that warning as originating from government officials.
The European Central Bank (ECB) doubled down on its dovish outlook, yesterday. The ECB said interest rates would remain “unchanged at least through the end of 2019 and announced a new series of quarterly targeted long term refinancing operations (TLRO-III). The said the move was necessary to combat economic weakness arising from “The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appear to be leaving marks on economic sentiment.” That put pressure on EURUSD which fueled broad-based US demand.
The US dollar opened in New York close to unchanged. It has retraced modestly since the NFP data. FX activity may be curtailed ahead of Fed Chair Jerome Powell’s speech on monetary policy at the end of the day.
USDCAD Technical Outlook
The intraday USDCAD are bullish while prices are above 1.3380, looking for a break of resistance in the 1.3465-80 area to target 1.3620. The long term uptrend from February 2018 is intact while prices are above 1.3140 For today, USDCAD support is at 1.3380 and 1.3360. Resistanced is at 1.3460 and 1.3480
Today’s Range 1.3390-1.3460