The CAD has been under pressure for most of the week, mainly due to Friday’s weaker-than-expected US labour data and this week’s less-hawkish-than-expected FOMC minutes.
Today the focus turns back to domestic data, which should keep all options open regarding additional policy action from the BoC.
Even if today’s employment data beats expectations we do not expect any improvement in labour market conditions to prove sufficient for lowering central bank easing expectations markedly. Elsewhere it must be noted that the external backdrop in Canada continues to worsen. In 2015, market consensus expects the current account deficit to widen to -2.8% from -2.2% previously. This reflects the drag from exports and lower oil prices but also the rise in import growth, which averaged 7.8% per annum from January 2014 to January 2015. The deterioration in the external balance suggests that Canada will need to attract fresh capital to support CAD.
Against a backdrop of low rates and weak growth we doubt Canada can attract the needed flows. As a result, we keep a bearish stance on CAD and remain in favour of selling the currency against the USD.