The Canadian dollar rally hit the breaks Monday after USD/CAD touched $1.2674 on Friday following U.S. and Canadian jobs data.
The Canadian employment report was surprisingly strong, Canada added 62,100 new jobs in November, knocking the unemployment rate down to 8.5% from 8.9%. Economists and analysts said the employment data showed the economy was in better shape than previously thought, supporting their view for robust economic growth in 2021.
Meanwhile, south of the border, non-farm payrolls rose 245,000. far less than the expected 469,000 increase. The U.S. dollar got spanked as traders concluded the rising numbers of coronavirus cases and the imposition of new virus restrictions meant the U.S. economy would underperform that of the rest of the G-10.
USD/CAD’s slide accelerated due to the contrasting jobs data and prices dropped to $1.2674 from $1.2864. Traders are not concerned about sky-high federal government deficits, or the current COVID-19 outbreaks across the country. Instead, they are looking ahead to 2021 and believe the availability of coronavirus vaccines will lead to an explosion of global economic growth in 2021.
The Canadian dollar support stems from its high correlation to U.S. equity indexes which are expected to continue to climb, supported by near zero interest rates and new fiscal stimulus. The rebound in China’s economy is evident as China’s trade surplus surged to $75.4 billion in November thanks to a 21.1% increase in exports. China’s recovery has led to higher commodity prices, which also support the Canadian dollar.
Asia FX markets opened the week on a cautious note with prices mostly rangebound. Things changed in Europe thanks to negative Brexit headlines. The European Union and U.K. weekend trade talks reportedly failed to make any progress. EU Chief Trade Negotiator Michel Barnier told the EU parliament that divisions remained about fishing rights, level playing field, and governance. The risk of a “no-deal” Brexit, elevated as time is running out. Senior E.U and U.K. policymakers are meeting today. Also, Prime Minister Boris Johnson and E.U. Commission President Ursula von der Leyden will talk tonight.
GBP/USD plunged from $1.3437 to $1.3226 on the drama. Prices have rebounded to $1.3290 in Toronto trading as traders still expect a “last-minute” deal.
EUR/USD dropped on the back of the soured risk sentiment. However, the technicals suggest the drop is just a correction, as the uptrend is intact while prices are above $1.1950.
Canada Ivey Purchasing Managers Index data is on tap today, while the U.S. economic calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians