New Jobs Data Causes CAD Collapse
With no major US economic reports scheduled for release today, the focus is on Canada. Economists were looking for an improvement in the labor market after an uptick in the employment component of the IVEY PMI release, but instead of creating jobs, Canada quite surprisingly lost 39.4k jobs in the month of July.
This was the second consecutive month of job losses and also the second-largest decline in job growth in more than four years. Canada’s unemployment rate rose back to 7.2% from 7.1% and the participation rate declined to a nine-year low, a level that has been revisited a few times in the past year. Losses in both full- and part-time work also reflect broad-based weakness in the Canadian labor market.
The gradual recovery in the US economy was supposed to support growth in Canada, but persistent trade deficits have restrained economic performance. As a result, the surprise decline in jobs sent the Canadian dollar (CAD) plunging against the US dollar (USD).
While USDCAD is still trapped in a broad, 1.0250-1.0600 range, we feel that the latest disappointment in data could bring the currency pair back up to its August highs.
Meanwhile, the US dollar is trading higher against all of the European currencies and lower against the Japanese yen (JPY) and commodity dollars.
The focus will shift back to the US next week, with retail sales and consumer confidence data scheduled for release. The level of consumer spending will play an important role in how quickly the Federal Reserve plans to taper asset purchases.
The Australian dollar (AUD) continues to be today’s biggest mover, and solid Chinese industrial production numbers have helped drive AUDUSD to fresh month-to-date highs. The upside surprises in Chinese data also squeezed out some of the AUDUSD short positions that have built up in recent months. Resistance for the pair currently comes in at the July highs of 0.9320.
See related: Chinese Data Steals the Show Again
By Kathy Lien of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.