USD/CAD has edged higher in the Tuesday session. Early in North American trade, the pair is trading just above the 1.34 line. On the release front, Canada’s trade surplus edged lower to C$0.8 billion, but this easily beat the forecast of C$0.2 billion. Later in the day, Canada releases Ivey PMI, which is expected to improve to 58.9 points. In the US, the trade deficit jumped to $48.5 billion, higher than the estimate 0f $47.0 billion. On Wednesday, the US releases ADP Nonfarm Employment Change, ahead of the official Nonfarm Payrolls report on Friday.
Canada’s labor market has improved, buoyed by strong employment gains. The economy added 48.3 thousand jobs and 53.7 thousand jobs in December and January respectively. This surprised the markets, which had predicted declines for each reading. The unemployment rate has also improved, dropping to 6.8%. A strong US economy has been good news for Canada, which is heavily dependent on its southern neighbor. At the same time, speculation of an imminent rate hike by the Fed has boosted the US dollar, which has jumped 2.2% since the end of February. If US nonfarm payrolls beats expectations, the Canadian dollar’s slide could continue.
Donald Trump has been in office for over a month but still continues to create controversy on an almost basis, much to the consternation of the markets. Still, the US dollar remains strong, buoyed by a strong economy and the increasing likelihood of a rate hike at the upcoming Fed policy meeting on March 15. The likelihood of a March hike as jumped to 84%, according to the CME group, compared to 33% just a week ago. Why the huge jump in odds? One reason is that Fed policymakers have sent out strong hints that the Fed is leaning towards raising rates next week. Earlier in the year, the Fed sent out signals Fed sent out signals that it would stay on the sidelines until it had a clearer picture of Trump’s economic agenda, such as an outline of tax reform or fiscal spending plans. That has changed, as the Fed appears poised to move ahead despite the lack of any details about the administration’s economic policy. This week’s job numbers will be critically important, as strong numbers will likely boost the odds of a March move as well as push the greenback to higher levels.