HomeContributorsFundamental AnalysisCanadian Dollar in Holding Pattern Ahead of Canadian, US Job Reports

Canadian Dollar in Holding Pattern Ahead of Canadian, US Job Reports

USD/CAD is unchanged in the Friday session. In North American trade, the pair is trading at the 1.35 line. On the release front, employment numbers will be on center stage on both sides of the border. The US will release three key indicators – Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate. The Nonfarm payrolls report is expected to drop to 200 thousand, while wages are forecast to improve to 0.3%. Canada will publish Employment Change and the unemployment rate. The markets are expecting the economy to add a negligible 0.6 thousand jobs. Given the host of key events, traders should be prepared of volatility from USD/CAD during the North American session.

Canada’s labor market has improved in recent months. Job creation numbers were much higher than expected in the fourth quarter, and this continued into 2017, as the economy added 48.3 thousand jobs. However, the impressive trend may peter out in February, with a forecast of only 0.6 thousand new jobs. The strong US economy, buoyed by a red-hot employment market, 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 3.5% against the Canadian currency in 2017. On Thursday, USD/CAD pushed above the 1.35 line, which last occurred on at the end of December.

After raising rates in December, the Fed appears ready to make a March move. The odds of a March hike continue to climb, and are currently at 88% percent, according to the CME Group. Fed policymakers have been dropping hints of a March move, and a red-hot labor market and higher inflation levels present further arguments in favor of higher rates. Earlier in the year, the Fed had said that it wanted to wait until it had a clearer idea of President Trump’s economic policy before it tightened monetary policy. However, Trump has not backed up his promises to reform the tax code and increase fiscal spending with any details. Some Fed policymakers wanted to raise rates earlier this year, so Fed Chair Yellen is under pressure to make a move, and it appears virtually certain that the Fed will raise rates by a quarter-point on March 15.

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