Canadian Dollar Extends Declines Following Softer Employment Data
Although the Canadian Dollar had already been under pressure in Friday trade on the back of some broad based risk liquidation and US Dollar demand, selling of the Loonie managed to accelerate following a much weaker than expected employment report. Market participants had been looking for a net change in employment of 21.5K and an unemployment rate to hold steady at 7.2%, but instead got a disturbing print of -5.5K for the change in employment and a rise in the unemployment rate to 7.3%.
Technically, the market should now look to retest the August spike highs by 1.0010, with a break back above this level to likely suggest a more significant shift in the structure exposing fresh upside towards 1.0500. In recent months we have seen an outperformance in the commodity bloc currencies on sounder economic fundamentals and more attractive yield differentials, but we fear that these economies could also soon be a risk should the global macro environment deteriorate further. Cyclically, the Canadian Dollar appears to be more overvalued against the US Dollar, and studies would suggest that the currency could be at risk of material depreciation over the medium and longer-term.
Written by Joel Kruger, Technical Currency Strategist
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