– Weak US and Canadian jobs data sinks Loonie
– Markets are cautious ahead of US inflation numbers on Wednesday.
– US dollar trading with bullish bias.
USDCAD: open 1.3566, overnight range 1.3552-1.3573, close 1.3575, WTI $68.38, Gold, $2496.31
The Canadian dollar rally ended abruptly on Friday with a fast and furious slide that lifted the USDCAD rate from 1.3467 to 1.3583. Disappointing employment reports in Canada and the U.S. sparked the gains.
August’s jobs report painted a mixed picture: while there was a modest increase in job numbers, the broader story is one of a Canadian labor market that’s gradually losing steam. Bank of Canada Governor Tiff Macklem, in Wednesday’s rate announcement, described the economy as having “enough slack,” a sign that the Bank sees room for further softening. This continuing slack in the labor market suggests more rate cuts could be on the horizon.
Nevertheless, it was the U.S. employment report that sparked the Canadian dollar sell-off. U.S. nonfarm payrolls fell short of expectations, coming in at 142k compared to the forecasted 165k, marking a slight underperformance. That was enough for traders to downgrade the odds of a 50 bp Fed rate cut next week to just 25%.
EURUSD is trading poorly after reaching a high of 1.1156 on Friday. Prices slid throughout the day and continued to drop overnight, in a 1.1037-1.1092 range. Traders were disappointed with the U.S. employment numbers, which managed to downgrade the odds of a 50 bp Fed rate cut next week. Adding to the cautious sentiment was Mario Draghi’s somber report on European Union competitiveness. He warned that “for the first time since the Cold War, we must truly worry about our survival,” pointing out that EU growth has consistently lagged behind the U.S. for the past two decades.
Sterling is trading negatively within a 1.3073-1.3144 range, as traders focus on the upcoming UK employment report. While this data is not expected to prompt the Bank of England to cut rates in September, a weaker-than-expected outcome could increase speculation of a possible rate cut in October, which might offer some support to GBPUSD.
USDJPY has found support and reversed Friday’s losses, rising from 141.96 to 143.78. This recovery was driven by downward revisions to Japan’s economic growth figures for Q2, with GDP growth adjusted to 0.7% q/q from 0.8% and 2.9% y/y from 3.1%. These revisions could push the Bank of Japan to reconsider its plans for raising interest rates.
AUDUSD is consolidating within a 0.6647-0.6689 range following Friday’s losses, impacted by weak Chinese economic data and the aftermath of Friday’s U.S. employment report.
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