HomeContributorsFundamental AnalysisCanadian GDP and Jobs Report Eyed for Rate Clues as Loonie Hits...

Canadian GDP and Jobs Report Eyed for Rate Clues as Loonie Hits One-Month Low

The Canadian dollar is once again on the verge of breaching the 50% Fibonacci retracement level of its impressive May-September uptrend. The currency has been suffering from the paring back of expectations of additional rate hikes by the Bank of Canada over the coming months, concerns about difficult NAFTA renegotiations and a stronger US dollar.

After several failed attempts in late October/early November to break this retracement level around C$1.2925 to the greenback, the loonie has been stuck in a range. Its uptrend came to a halt in September soon after the Bank of Canada raised rates for a second time this year. BoC officials have been signalling that further rate hikes will be data-dependent, but incoming data since the September policy meeting has been mixed.

Employment growth, particularly in full-time jobs, has been strong but inflation has moderated slightly to 1.4% in October and retail sales disappointed in September. Friday’s numbers will therefore be watched closely for a clearer indication as to the strength of the Canadian economy and whether further rate hikes would be warranted in the near term.

GDP expanded by a robust annualized rate of 4.5% in the second quarter, following a similarly solid 3.7% growth in the first quarter. However, this rapid pace is expected to have slowed in the third quarter and consensus forecasts are for the economy to have expanded by 1.6% in the three months to September.

The unemployment rate is expected to dip back to 6.2% in November after increasing by 0.1 percentage points to 6.3% in October. The number of new jobs created though is forecast to ease from 35.3k in October to 10k in November.

An upside surprise to tomorrow’s data could bring forward market expectations of the next rate increase by the BoC. Investors are currently pricing the next move to come in April or May 2018, with a rate hike at the next meeting on December 6 having sharply diminished in recent weeks. Weaker than anticipated readings could push back the expectations even further into the future, which would be negative for the loonie.

While a possible output extension deal by OPEC/non-OPEC countries could provide some support for the Canadian currency, the loonie’s positive correlation with oil prices hasn’t been very strong recently, with rate hike expectations being a bigger driver for the dollar/loonie pair.

If dollar/loonie manages to break above resistance at the 50% Fibonacci level around 1.2925, it could pave the way for additional gains towards the 1.31 handle. But upbeat data tomorrow could push the pair back towards recent support around 1.2660.

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