The Canadian dollar has started the week with slight losses, as USD/CAD is trading at 1.2680, up 0.25% on the day. Canadian banks are closed for a holiday and there are no major US events on the schedule, so traders can expect an uneventful day from the pair. On Tuesday, the US releases JOLTS Jobs Openings., which is expected to edge lower to 5.66 million.
The markets were glued to employment numbers on both sides of the border on Friday, and the US releases were considerably stronger than the Canadian numbers. The Canadian dollar had recorded five consecutive weekly gains, but that streak ended, as the loonie slipped 1.7% last week. US Nonfarm Payrolls came in at 209 thousand, easily beating the estimate of 182 thousand. The unemployment rate edged lower to 4.3%, but wage growth remains soft, and was unchanged at 0.3%. On the Canadian side, the economy added 10.9 thousand jobs in July, but this missed the estimate of 13.1 thousand, and was well below the June reading of 45.3 thousand. There was some positive news, however, as Canada’s unemployment rate dropped from 6.5% to 6.3%, its lowest level since 2008.
The strong US payrolls report has boosted the odds of a December rate hike, which are currently at 47%, up from 43% one week ago. With the Federal Reserve unlikely to raise rates before December, investor attention has shifted to the Fed’s balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed’s plans, likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had "fully recovered" from the 2008 financial crisis and called on the Fed to start trimming the balance sheet "this fall". Williams added that the process would be gradual and would take four years to reduce the balance sheet to a "reasonable size". Other FOMC members have also come out in favor of the Fed starting to wind up its portfolio this fall.
