The loonie may not be brought to tears when Canada releases its first employment report of the year on Friday at 12:30 GMT, as weaker figures are inevitable given the tight lockdown restrictions during the month of January. The data, however, will still be worthy to watch since the Bank of Canada (BoC) left two conflicting scenarios open during its previous policy meeting, and investors would like to gather fresh clues before they make assumptions about the next policy announcement.
Dovish and hawkish
The BoC disappointed those who were expecting a micro rate cut last month, keeping its borrowing costs steady at a record low of 0.25% and its asset purchases unchanged. Although the policy statement clarified that rates will remain low at this effective lower boundary by 2023, the case of lower but positive rates was not entirely excluded. BoC chief Tiff Macklem judged that there is a high degree of uncertainty around the virus story and the economy may need extra stimulus to survive any negative shocks.
On the other hand, and perhaps on a more significant note, Macklem admitted he was prepared to scale back asset purchases at a gradual pace if the recovery takes hold. Particularly, policymakers expect economic activities to heat up in the second quarter if the government removes restrictions in the first quarter, also expressing that the outlook for Canada is now ‘stronger and more secure’ than in October thanks to the earlier than expected availability of vaccines and the massive stimulus unleashed. Indeed, the latest monthly GDP release was promising, showing a slightly steeper expansion in November than analysts projected, though the prolonged curfews and the delay in vaccine distributions are widely projected to sink GDP prints back to negative territory in the coming months.
A dull jobs report is normal
Friday’s jobs report for January could give a more updated look of the Canadian economy, likely reflecting the damage from the latest stay-at-home orders. According to forecasts, employment declined at a slightly softer pace of 47.5k compared to the 62.60k downfall in December, pushing the unemployment rate up by 0.2 percentage points to 8.9%.
A dull labor market is a normal phenomenon during the lockdown period; therefore, the above figures may not squeeze the loonie. Instead the report could endorse the dovish part of the BoC’s latest policy statement, hinting that an earlier tapering to the asset scheme could cause more harm than good to the economy. Yet, investors may wisely wait for February’s employment figures before making final conclusions about the central bank’s next action on March 10.
USD/CAD levels to watch
From a technical perspective, the loonie seems to be at a disadvantage against the dollar in the short-term picture. Should USD/CAD secure a strong footing around 1.2760, where the 23.6% Fibonacci of the 1.3389 – 1.2586 is placed, the pair may re-challenge the 1.2845 – 1.2907 resistance zone. A decisive close higher would raise hopes of an up-trending market, especially if the price overcomes the 1.2955 peak from December 21 too.
Alternatively, if the pair retreats below 1.2760, the 20-day simple moving average (SMA) may block the way towards 1.2680, where any violation could bring the crucial 1.2625 – 1.2586 support region under the spotlight.
Note that US nonfarm payrolls are published at the same time on Friday.
