The Canadian dollar is trading lower versus the US dollar on Friday despite the U.S. non farm payrolls (NFP) disappointing investors by missing the target with a more modest 138,000 job gains. The US got some support from the drop in the unemployment rate to a 16 year low, to 4.3 percent. The loonie was unable to capitalize on the softer economic data out of the United States this week as the decision by the Trump administration to drop out of the Paris Climate accord was read as a signal of an impending increase in US shale drilling. The price of oil reacted negatively and is down almost 4 percent on a weekly basis. Earlier in the week the drawdown in US inventories took the price of WTI above $50, but it is currently trading at $47.55.
Canadian exports climbed to a record high in April as the weaker currency appears to have finally helped exporters turn the corner. Canada remains at a deficit, but exports grew at a faster pace than imports but still could not cover a C$370 million gap. There is a surplus with the US where Canada sent C$5 billion more than it imported, and a jump from C$3.4 billion the month before, this won’t go unnoticed by the Trump administration as the process to renegotiate NAFTA has been triggered with talks dates still not set, but expected in late August.
The miss in the US jobs report is not anticipated to derail the June rate hike by the U.S. Federal Reserve. The central bank will meet in June 13 and 14 to make its monetary policy decision. The CME FedWatch tool continues to price in a more than 90 percent chance of a rate hike in June. Fed speakers have supported this move in their comments, without mentioning the upcoming meeting but making clear that the Fed could raise rates two or more times this year. The June rate hike is already taken into consideration in the valuation of the US dollar, but further moves in particular September and December are questionable. Improved data and guidance similar to the one before the March rate hike will be needed barring anymore controversies out of the White House that could impair the greenback.
The USD/CAD gained 0.246 percent in the last five days. The currency pair is trading at 1.3493 after a volatile week. The ups and downs of the oil price and the correlation between crude and the loonie put downward pressure on the currency despite the struggles of the US dollar. The US jobs report published on Friday came in lower than expected and raised question marks about the strongest pillar of economic recovery south of the border. Canadian job data will be published next week with a gain of 10,000 expected as a clear sign of the rebound in exports promoting faster growth.
The Bank of Canada (BoC) has been a proponent of an export led recovery as the currency was weaker due to the dramatic fall in oil prices. Exports have risen, despite the price of oil being stuck in current ranges as the OPEC production cut got an extension that will take it to next year, but its being offset by rising shale production from the US.
The price of oil fell 3.06 percent in the last five days. West Texas Intermediate is trading at $47.46 despite a huge drawdown in weekly oil inventories last week. Crude hit a three week on the back of the US abandoning the Paris Climate Accord. The increase in US production has kept the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement from boosting oil prices, and the move by the Trump administration will support more shale drilling putting more supplies in an already saturated market.
Market events to watch this week:
Monday, Jun 5
4:30am GBP Services PMI
10:00am USD ISM Non-Manufacturing PMI
Tuesday, Jun 6
12:30am AUD Cash Rate
9:30pm AUD GDP q/q
Wednesday, Jun 7
10:30am USD Crude Oil Inventories
9:30pm AUD Trade Balance
Tentative CNY Trade Balance
Thursday, Jun 8
All Day GBP Parliamentary Elections
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Unemployment Claims
Friday, Jun 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate