The Canadian dollar continues to have a quiet week. In the Wednesday session, USD/CAD is trading at 1.2667, down 0.16% on the day. On the release front, both Canada and the US release Trade Balance, and the US will also publish ISM Non-Manufacturing PMI. On Wednesday, the Bank of Canada will set the benchmark rate and the US releases ADP Nonfarm Employment Change.
The Bank of Canada is expected to remain on the sidelines and leave the benchmark rate at an even 1.00% on Wednesday. Although some analysts don’t expect the BoC to raise rates before next April, that timetable could change if last week’s sparkling numbers continue. On Friday, employment change soared to 79.5 thousand, crushing the estimate of 10.2 thousand. This marked 12 straight months of job gains and helped drive the unemployment rate down to 5.9%. As well, September GDP rebounded with a gain of 0.2%, edging above the estimate of 0.1%. The impressive numbers boosted the Canadian dollar by some 1.6% on Friday, its strongest 1-day gain in 2017. On Tuesday, the Canadian dollar climbed to its highest level since October 24. If today’s BoC rate statement sounds optimistic about the Canadian economy, the loonie rally could continue. Another factor which the BoC must take into account is expected rates hikes in the US in December and January. If the Fed does raise rates at its next two policy meetings, the BoC would have to follow suit with a raise of its own, or watch the Canadian dollar head lower.
The US labor market has been red-hot, but the markets are bracing for some weak November numbers. ADP Nonfarm Employment Change is expected to slow to 189 thousand, compared to 235 thousand in the previous release. Investors are, of course, much more interested in the official nonfarm employment change release, which takes place on Friday. Again, the markets are expecting a soft landing, with a forecast of 200 thousand, down from 261 thousand in the October release. If nonfarm payrolls, one of the most important indicators, is weaker than expected, the US dollar could lose ground.