The Canadian dollar has posted slight gains in the Monday session, after trading sideways on Friday. USD/CAD is trading at 1.2878, up 0.24% on the day. It’s a light day on the release front, with no major releases in the US or Canada. On Tuesday, Canada releases Housing Starts and the US publishes PPI and JOLTS Job Openings. We’ll also hear from Federal Reserve Chair Jerome Powell, who will speak at an event in Zurich.
Canadian indicators ended the week on a high note. Ivey PMI jumped to 71.5 points in April, crushing the estimate of 60.2 points. This economic index covers all sections of the Canadian economy, but the positive release failed to boost the Canadian dollar, as USD/CAD was unchanged on Friday. In the US, job numbers were a mixed bag. Nonfarm payrolls rebounded with a gain of 164 thousand, although this fell short of the estimate of 190 thousand. Wage growth dropped from 0.3% to 0.1%, missing the estimate of 0.2 percent. There was some good news from the unemployment rate, which dropped to 3.9%, beating the estimate of 4.1%. The Fed will likely be pleased that nonfarm payrolls were not red hot, as they April report justifies its policy of gradual rate hikes.
The Canadian economy is in good shape and the markets can expect additional rate hikes this year. That was the hawkish message from Bank of Canada Governor Stephen Poloz at an event last week in Yellowknife. Poloz singled out household debt as a significant concern, but said that “since the economy is close to where it belongs, interest rates are headed higher”. The markets are confident that the BoC will press the rate trigger in July, with the odds of a hike currently at 73 percent. Other economic issues that Poloz said are weighing on the Canadian economy include uncertainty over US trade policy and the ongoing NAFTA negotiations. If there is progress to report on the US-China tariff spat or on NAFTA, the Canadian dollar should respond with gains.
