USD/CAD – Loonie Rallies on Inflation Data

Statistics Canada data this morning showed that headline inflation in Canada slowed last month, while measures of underlying prices strengthened to their highest level in 18-months.

Canada’s consumer-price index rose +1.7% y/y in January, following a +1.9% advance in December.

Market expectations were for a +1.5% lift. On a month-over-month basis, prices rose +0.7% in January versus an expected print of +0.4%.

Digging deeper, today’s report indicated underlying, or core, inflation strengthened in the month. Underlying prices rose in a range from +1.8% to +1.9%, for an average of +1.83% – the highest level since mid-2016. The average in the previous month was +1.76%.

The ‘loonie’ is up +0.51% against the U.S dollar, trading atop of C$1.2659. The CAD was trading north of C$1.2712 just before this morning’s release.

USD/CAD – Loonie flash plummets on weaker jobs report

  • Canada Jan Net Jobs -88,000 From Dec
  • Canada Jan Net Jobs Forecast At +10,000
  • Canada Jan Full-Time Jobs +49,000; Part-Time -137,000
  • Canada Jan Avg Hourly Wages +3.3% From Year Ago
  • Canada Labor Force -73,700 In Jan From Dec
  • Canada Jan Participation Rate At 65.5% Vs 65.8% In Dec
  • Canada’s unemployment rate ticked up last month after hitting a 10-year low in December, as both the public and private sectors shed workers.

    The Canadian economy lost a net -88k jobs in January on a seasonally adjusted basis. The market expectations were for an increase in employment of +10k.

    Canada’s unemployment rate ticked a tad higher to +5.9% in January, up from a revised reading of +5.8% in December.

    The loonie took it on the chin immediately, moving from C$1.2601 to an intraday dollar high of C$1.2694. The CAD has since pared all of those losses and then some, trading atop of C$1.2600.

    The CAD bears will have been disappointed with the initial price action as there were looking for better USD levels to sell their longs. A plethora of dollar sell orders had been scattered atop of the psychological C$1.2700 handle.The USD/CAD is trading lower on the day at C$1.2585.

    Hawks coming home to roost

    Hawks coming home to roost

    Equity markets were trounced on the back of Global yields parading to multi-year highs Thursday. Indeed, it was less dovish Fed speak that continued to be the driver, and the BoE provided a hawkish bounty for good measure.

    The ruckus in the bond pits these days appears hell-bent on marching towards 3 % 10Year UST yields much quicker than anyone had suspected which suggest equity markets will come under the hammer for some time to come. Yields are becoming the real storyline as a combination of tighter monetary policy and the US burdening deficit leading to more supply, suggests we have crossed a 2.75 % 10Y UST bridge of no return, and the ride could get bumpier for equity investors.

    The issue is not so much the 3% level but rather the pace that Bond yields have been rising in the US that is sending the markets into disarray. The rapidity of the moves has caught the markets by surprise, and we are going through the predictable panicked repricing of most asset classes.

    Oil Markets

    Crude prices continued to tank overnight as the commodity complex has suffered dearly due to the uptick in market volatility. But the toxic combination of rising US output and a stronger US dollar has nullified OPEC production cut momentum.

    With the markets factoring in US crude production to continue hitting new record highs through 2018, the supply dynamics suggest a move below $ 60 WTI is in the offing.
    Gold Markets
    Gold toppled to a five-week low after the Bank of England whispered a sooner and more substantial rate rises after revising their growth and inflation forecast. The quicker than expected shift on Central Bank Monetary Policy outlooks coupled with the rapid increase in US bond yields continues to dampen investor sentiment. However, Gold prices quickly recovered as the equity market drawdowns continue to attract risk off hedges while the Syria Standoff with Turkey is offering support on the geopolitical front.
    Currency Markets

    The Australian Dollar

    The rise in US bond yields has toppled the Aussie dollar and dented risk sentiment as global equity market continues to tumble.

    Market volatility is weighing negatively on commodities, add in a dose of dovish RBA rhetoric, and therein lies the heart of the Aussie dollar woes.

    Also, the Aussie was trampled on when USDCNH shot up from 6.3050 to 6.3750 as it seems that China is opening up more channels for outflows to slow RMB appreciation. (See below)

    The Aussie dollar tends not to flourish in these types of markets.
    The $ Bull in the China Shop: Chinese Yuan

    The dollar bull was let loose in the China shop yesterday as a confluence of events had trader paring back short US dollar risk from the morning fix.

    The fix came in a bit higher than expected which usually causes a bit of a move higher but, it was the article in China Economic Daily that was creating the most noise as the report urges corporates to enhance FX risk management. (Nudge Nudge)
    China has also resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments. While it does not have a massive Foreign Exchange flow impact,  and  more symbolic than anything else,  it is none the less suggestive that the Pboc is less sensitive to capital outflow

    Given that positions were skewed short US dollar, the confluence of events had traders covering positions aggressively knowing that liquidity will be sure to dry up the closer we get to Lunar New Year.

    The China trade numbers were perceived disappointing ( I have opposite view) which contributed to some currency negativity.

    But from any logical perspective, it was hard to ignore the Mainland equity fire sales this week which certainly had a negative bias on currency sentiment

    The Malaysian Ringgit

    Negative regional currency signals abound.

    The rapid repricing higher in US bond yields has taken investors by surprise. Moreover, with US yields looking to push higher, we could be in for a bit more pain before the markets find some solid footing.

    Higher US yields are supporting the USD and weighing on global equity sentiment which is hurting overall regional risk appetite.

    US record crude production continues to weigh negatively on oil prices.

    The proximity of Chinese Lunar New year has traders paring back risk.

    The market, at least for now, is hedging against the Fed potentially leaning more hawkish, which is explaining the uptick in USD, US Yields and lower equity markets.

    Market Jitters Remain

    Market Jitters Remain

    US stocks toppled again on Wednesday in choppy and messy fashion after a dispirited US Treasury auction revived concerns about a hawkish Fed, unnerving investors already spooked after the rapid climb in US Treasuries apparently ignited a jump in the Cboe Volatility index.

    A deplorable auction with meek demand pushed yields on 10-year US Treasuries to 2.84 percent, up four basis points, with traders now eyeing Monday’s a four-year high of 2.88 percent.

    The market is now hedging against the Fed potentially leaning more hawkish which is explaining the uptick in USD and US yields.

    There was a glimmer of hope earlier in the NY session that equities markets were finding a happy medium, but the equilibrium shattered as optimism gave way to more selling when Federal Reserve Doves see the inflationary lightbulb flicker.

    Fed Evans, who dissented along with Kashkari on the December rate hike, has also embraced Kashkari’s new hawkish tone post-Friday’s earnings data. While his baseline remains a hold in rates until mid-year but with on crucial commonition: “In contrast, suppose inflation picks up more assuredly, as many expect. Then, we still could easily raise rates another three or even four times in 2018 if that were necessary. And I would support such a faster pace if the data point convincingly in this direction.”

    Of course, this hawkish Fed discourse has elevated market chatter this morning centring on how the  Trump Administration could react if the USD parades higher on a more hawkish Fed. It certainly makes for exciting international intrigue  to the debate in the wake of comments from ECB member Nowotny who charged that the US Treasury is deliberately putting pressure on the USD

    Oil Prices

    Oil prices have been getting battered by forces beyond the nodding donkey of late. The weaker narrative has been underpinning prices, but with the market shifting to a more hawkish fed description the US dollar slide has come to a blunt halt is now weighing negatively on oil prices. Notwithstanding the unforeseen disorder in the broader financial system has seeped into the oil markets.

    With Oil prices ones WTI fell abruptly after the U.S. government reported crude stockpiles rose by 1.9 million barrels. But its the deluge US production that remains the most significant menace to OPEC production cuts. The bottom line is the US crude production should keep hitting new highs throughout 2018 after reaching an all-time higher of 10.25 m barrels per day. 11’s are not that far away.

    Gold Prices

    Stronger US dollar and higher US Treasury yields have depressed demand for Gold overnight. And with equities souring and with prices continuing to melt away, gold markets could be susceptible to a stock market rebound.

    The shifting Fed narrative that is gathering hawkish following could be the most significant thorn in the Gold Bulls side.

    Currency Markets

    Japanese Yen

    The Yen will be traded like a puppet whose strings are manipulated by equities and fixed income price movements.

    Australian Dollar

    The risk-off moves from Monday’s equity plunge were enough to liquidate short USD and with continued broad de-risking assignments still being played out. I suspect the Aussie bulls with remain in time out corner until we get back above .7850 and a fraction of risk appetite returns. When you view every possible trade scenario as an ambush, probably best to tread cautiously.
    The Malaysian Ringgit

    The re-emergence of the Federal Reserve Board Hawks and Oil prices looking very susceptible to ramped up US shale oil production continues to weigh negatively on the MYR.

    But indeed, the uptick in market volatility has tamed investors appetite, so bullish signals are far and few between

    Dollar Rebounds After Strong Jobs Report

    US added 200,000 positions in January

    The US dollar rose against major pairs on Friday. The release of the U.S. non farm payrolls (NFP) proved to be the much needed shot in the arm after the greenback was under pressure for most of 2018. The job gains were above expectations but more importantly the hourly wages came in higher, giving the Fed a potential green light to hike 3 or 4 times in 2018. The market is estimating a 77.5 percent probability of the first rate lift to come in March.

    • The Reserve Bank of Australia (RBA) will publish its rate statement on February 5
    • the Reserve Bank of New Zealand (RBNZ) will follow on February 7
    • The Bank of England (BoE) will host a super Thursday on February 8

    USD surged after wages rose more than expected



    The EUR/USD gained 0.22 percent in the last five days. The single currency is trading at 1.2424. The USD was having a week to forget but a jobs week is not done until the U.S. non farm payrolls (NFP) report is released. The gain of 200,000 jobs in January was the boost the dollar needed after the Fed and the ADP did now sway the market. The USD reversed most of the losses of the week, gaining 0.43 percent against the EUR. The biggest boost came from the hourly wages growth at 0.3 percent for an annualized gain of 2.9 percent.

    The disappointing December jobs report played a part as investors were estimating 180,000 positions and instead got pleasantly surprised by both strong gains and positive inflation signals. The move in the USD could be under threat next week as there are few economic released of note in the US and the political drama in Washington has not been beneficial to the greenback.

    Fundamentals indicators and monetary policy has been supportive of the USD, but political uncertainty has hurt the dollar’s status as a reserve currency. The upgraded growth expectations around the world have also shrunk the gap between the US and the rest of the world.



    The GBP/USD lost 0.31 percent during the trading week. The currency pair is trading at 1.4120 ahead of the Bank of England (BoE) monetary policy meeting on Thursday, February 8 at 7:00 am EST. The central bank is not expected to change its benchmark rate but it could signal a hike sooner rather than later specially as expectations of a softer Brexit and economic growth has been encouraging. The BoE made its first rate rise in a decade back in November. The data released on Super Thursday, so called because of the sheer number of announcements, will guide the market and shape the monetary policy expectations going further into 2018.


    Canadian dollar weekly graph January 29, 2018

    The USD/CAD gained o.86 percent during the week. The currency pair is trading at 1.2421. The USD appreciated against the loonie and put the Canadian currency at weekly lows. The greenback rose 1.22 versus the CAD on Friday after the release of the U.S. non farm payrolls (NFP). The U.S. Federal Reserve meeting and positive employment numbers earlier in the week did little for the USD, but with the release of the biggest indicator it all turned.

    The economic data releases form Canada will start with on Tuesday, February 6 at 8:30 EST with publication of the trade balance. Later that same day the Ivey Purchasing Managers Index will be posted at 10:00 am EST. Employment data will be the highlight of the week on Friday, February 9 at 8:30 am with a 2,000 job loss report expected after the back to back gains of 70,000 positions in the previous months.

    Market events to watch this week:

    Monday, February 5
    4:30am GBP Services PMI
    10:00am USD ISM Non-Manufacturing PMI
    7:30pm AUD Retail Sales m/m
    7:30pm AUD Trade Balance
    10:30pm AUD Cash Rate
    10:30pm AUD RBA Rate Statement
    Tuesday, February 6
    8:30am CAD Trade Balance
    4:45pm NZD Employment Change q/q
    NZD Unemployment Rate
    Wednesday, February 7
    10:30am USD Crude Oil Inventories
    3:00pm NZD Official Cash Rate
    3:00pm NZD RBNZ Monetary Policy Statement
    3:00pm RBNZ Rate Statement
    4:00pm NZD RBNZ Press Conference
    Thursday, February 8
    4:00am AUD RBA Gov Lowe Speaks
    7:00am GBP BOE Inflation Report
    7:00am GBP MPC Official Bank Rate Votes
    7:00am GBP Monetary Policy Summary
    7:00am GBP Official Bank Rate
    7:30pm AUD RBA Monetary Policy Statement
    Friday, February 9
    4:30am GBP Manufacturing Production m/m
    8:30am CAD Employment Change
    8:30am CAD Unemployment Rate

    *All times EDT
    For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar