The Canadian employment report for the month of March will be made public on Friday at 1230 GMT. The Canadian dollar will be in focus as the data are released. The currency managed to post some gains versus its US counterpart as of late on the back of optimism around an imminent NAFTA deal, though it continues to perform poorly year-to-date, trading lower by 1.5%.
Canada’s economy is expected to have added 20k positions in the month of March. This compares to February’s 15.4k that followed a big loss in January. The unemployment rate is projected to remain at 5.8%, its lowest since the 1970s.
The Bank of Canada has delivered three quarter percentage point interest rate hikes since July. The Bank’s next rate decision is due on April 18, with market participants currently not anticipating a rate increase on that date; Canadian overnight index swaps assign a probability of around 80% for rates to remain on hold. However, markets see a higher chance for a 25bps rate hike during the BoC’s July meeting, with such an outcome being priced in by 71% at the moment.
February’s jobs report, despite reflecting somewhat of a recovery in the number of positions added to the economy, was tainted by the fact that gains were all in the part-time sector – full-time positions actually fell – while wage growth softened relative to January. On balance, the readings prompted analysts to predict that the BoC will proceed with a more gradual pace of policy normalization. Should the upcoming prints lead markets to scale back in time their expectations for additional tightening by the Bank, then the loonie is anticipated to come under pressure; the opposite holds true as well.
Upbeat data out of Canada are expected to boost the local dollar, exerting downward pressure on the dollar/loonie pair. Support in case of a declining dollar/loonie might come from the range around the current level of the 50-day moving average at 1.2731 and the 50% Fibonacci retracement level of the January 31 to March 19 upleg at 1.2685. Notice that the area around these points was congested in previous months, as well as that the 200-day MA lies not far below this area at 1.2633.
Conversely, disappointing numbers have the capacity to lift the pair. Resistance to advances could be taking place at the moment around the 38.2% Fibonacci mark at 1.2789, including the 1.28 round figure that may hold psychological significance. Stronger bullish movement would turn the attention to the 23.6% Fibonacci level at 1.2917, with the range around it encapsulating the 1.29 handle and a few tops from the recent past.
It is important to keep in mind though that reaction in dollar/loonie would not be solely dictated by the Canadian employment report, as at the same time on Friday the US will see the release of its own jobs report for March.
Lastly, any analysis on Canada and the loonie cannot omit reference to NAFTA negotiations, as the currency appeared highly sensitive to developments on this front over the last number of months. A “no deal” outcome is likely to see the dollar/loonie pair surge as Canada is seen as losing much more than the US under this scenario. However, the latest “chapter” in the negotiations story has been loonie-supportive, with the parties involved appearing closer to a deal. Particularly, it seems that an agreement is desired before July’s Mexican presidential elections, as things might further complicate thereafter. Despite this though, there are mixed signals as well with Trump not too long ago – on Sunday – threatening to leave the NAFTA talks. This though, might have merely been a negotiating tactic by the US president rather than reflect his administration’s true intentions on the future of NAFTA.
