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Will Canada Employment Spark New Lows in USD/CAD & Alter BoC Policy?

Will Canada Employment Spark New Lows in USD/CAD & Alter BoC Policy?

2014-07-11 07:00:00
David Song, Currency Strategist
Share:

- Canada Employment to Increase Another 20.0K in June .

- Jobless Rate to Hold at an Annualized 7.0% for Second-Month.

Trading the News: Canada Net Change in Employment

Another 20.0K rise in Canada employment may trigger fresh monthly lows in the USD/CAD as it limit’s the risk of seeing the Bank of Canada (BoC) further embark on its easing cycle.

What’s Expected:

USD/CAD Canada Employment

Why Is This Event Important:

An upbeat job report may spur a material shift in the policy outlook as BoC Governor Stephen Poloz scales back his willingness to deliver another rate cut, and the central bank may adopt a more neutral tone for monetary policy as the rise in employment highlights an improved outlook for growth and inflation.

For LIVE SSI Updates Ahead of Canada’s Employment Report, Join DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Housing Starts (JUN)

190.0K

198.2K

Building Permits (MoM) (MAY)

2.0%

13.8%

Retail Sales (MoM) (APR)

0.6%

1.1%

The pickup in household spending along with the expansion in building activity may pave the way for a positive employment print, and a pickup in job growth may heighten the appeal of the Canadian dollar as it raises the BoC’s scope to normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Business Outlook Future Sales (2Q)

30.00

24.00

Ivey Purchasing Manager Index s.a. (JUN)

52.0

46.9

Gross Domestic Product (MoM) (APR)

0.2%

0.1%

However, the data print may fall short of market expectations as businesses confidence wanes, and a dismal jobs report may generate a larger correction in the USD/CAD as it drags on interest rate expectations.

For more updates, sign up for David's e-mail distribution list.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Core Inflation Rises 1.5% or Greater

  • Need red, five-minute candle following the CPI report to consider short USD/CAD entry
  • If the market reaction favors a bullish Canadian dollar trade, establish short with two position
  • Set stop at the near-by swing high/reasonable distance from cost; use at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish CAD Trade: Canada Price Growth Disappoints

  • Need green, five-minute candle following the release to look at a long USD/CAD trade
  • Carry out the same setup as the bullish loonie trade, just in the opposite direction

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Fails to Retain Bullish Trend from 2013; Bearish RSI Momentum Favors Lower Highs & Lows
  • Interim Resistance: 1.0820 (61.8% retracement) to 1.0830 (61.8% retracement)
  • Interim Support: 1.0580 (61.8% retracement) to 1.0610 (78.6% expansion)

Read More:

Price & Time: Where Are the Make or Break Levels in the Yen?

USD Continues to Carve Lower-Highs; Broader EUR/USD Range in Focus

Impact that the Canada CPI report has had on CAD during the last month

Period

Data Released

Survey

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2014

06/06/2014 12:30 GMT

25.0K

25.8K

+37

+19

May 2014 Canada Consumer Price Index (CPI)

USD/CAD Chart

Employment increased 25.8K in May after the Canadian economy shed 28.9K jobs the month prior, while the jobless rate unexpectedly up ticked to an annualized 7.0% from 6.9% in April. Despite the better-than-expected print, the U.S. Non-Farm Payrolls (NFP) played a greater role in driving the USD/CAD as the exchange rate climbed to a daily high of 1.0947, but we saw the dollar-loonie consolidate ahead of the weekend as the pair closed at 1.0925.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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