USD/CAD – Canadian Dollar Inches Higher, Markets Eye US Jobs Report

The Canadian dollar has ticked higher on Tuesday. Currently, USD/CAD is trading at 1.2670, down 0.03% on the day. In the US, today’s major event is US JOLTS Jobs Openings, which is expected to improve to 5.74 million. On Wednesday, the US releases two employment indicators – Preliminary Nonfarm Productivity and US Preliminary Unit Labor Costs. Canada will release Housing Starts and Building Permits.

The Canadian dollar has posted strong gains against the greenback in recent weeks, gaining 6.0% since June 1. Investor appetite for the US dollar has softened, as political risk has been growing and there are doubts if the Fed will raise rates before 2018. President Trump’s administration seems rudderless and Trump’s inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 33%, compared to 43% a week ago. In contrast to the Fed, it’s full steam ahead for the Bank of Canada. The bank raised interest rates in July and the improving economy could mean that more rate increases lie ahead. In May, annualized GDP was up 4.6%, and the economy continues to produce jobs. The increase in oil prices has revived the economy and pushed the Canadian dollar higher.

The US economy continues to grapple with weak inflation, which is also apparent in the labor market. Although the nonfarm payrolls report in July easily beat expectations and the unemployment rate dropped from 4.4% to 4.3%, wage growth remains a sore point. In July, Average Hourly Earnings remained unchanged at 0.3%, and the indicator has failed to break above 0.3% in 2017. The weakness in earnings growth has puzzled economists, as a red-hot labor market should translate into higher wages. In fact, wage growth has actually slowed in 2017, and this could have significant economic repercussions, as consumers are responding by holding tight on the purse strings and reducing spending.

USD/CAD Fundamentals

Tuesday (August 8)

• 6:00 US NFIB Small Business Index. Estimate 103.6. Actual 105.2
• 10:00 US JOLTS Job Openings. Estimate 5.74M
• 10:00 US IBD/TIPP Economic Optimism. Estimate 50.6

Wednesday (August 9)

• 8:15 Canadian Housing Starts. Estimate 204K
• 8:30 Canadian Building Permits. Estimate -1.8%
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 1.1%

*All release times are GMT

*Key events are in bold

USD/CAD for Tuesday, August 8, 2017

USD/CAD Tuesday, August 8 at 8:00 EDT

Open: 1.2680 High: 1.2684 Low: 1.2651 Close: 1.2673

USD/CAD Technical

USD/CAD has showed little movement in the Asian and European sessions

• 1.2562 is providing support
• 1.2701 is a weak resistance line
• Current range: 1.2562 to 1.2701

Further levels in both directions:

• Below: 1.2562, 1.2445 and 1.2302
• Above: 1.2701, 1.2815 and 1.2943

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged this week. Currently, long positions with a strong majority (75%), indicative of trader bias towards USD/CAD reversing directions and moving upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.