The Canadian dollar is on a holding pattern ahead of key Canadian and US employment reports later today. Currently, USD/CAD is trading just above the 1.27 line.
Nonfarm payrolls could shake up US dollar
It could be an active North American session for the Canadian dollar, with the release of Canada’s job creation numbers and the US nonfarm payrolls. Expectations are low for the Canadian data, with a forecast of just 27 thousand new jobs in December, after a robust gain of 153 thousand in November. There is plenty of anticipation around the nonfarm payroll release, however, especially after the monster ADP release earlier this week. The ADP gain of 807 thousand was double the consensus of 400 thousand, but historically, ADP has not been a reliable gauge of nonfarm payrolls.
The forecast for NFP is around 425 thousand, and a release below 250 thousand or above 550 thousand could shake up the US dollar. Investors are starting to get nervous now that a Fed rate hike could only a few months away, and the timeline for the first rate hike could be impacted by the strength of the nonfarm payroll release. A strong gain would strengthen the likelihood of a March hike, while a soft NFP could delay lift-off of a hike, which could lead to a rotation out of US dollars.
In determining when to start hiking, policymakers will be looking not only at the strength of the recovery but also at inflationary pressures. The Fed has abandoned its view that inflation is ‘transitory’ and this week’s FOMC minutes indicated that policymakers viewed inflation risks to the upside and are also concerned about the very tight job market. The minutes also stated that the Fed is considering scaling back its balance sheet as another brake on the economy. The markets took note, with 10-year bonds rising above 1.70% and CME FedWatch pegging the likelihood of a March hike above 70%.
USD/CAD Technical
- USD/CAD is testing resistance at 1.2784. Above, there is resistance at 1.2929
- There are support levels at 1.2558 and 1.2477
