USD/CAD: Canadian dollar buoyed by strong employment data
The Canadian dollar edged higher against its US counterpart Tuesday, as the loonie continued to ride strong employment figures amid a dearth of economic data.
The loonie climbed to 0.8805 US in the early North American session after pulling back from the mid-88 region on Monday.
The USDCAD pair declined 0.18 percent to 1.1356. Initial support is likely found at 1.1319 and resistance at 1.1407.
The loonie surged on Friday after Canadian employment rose unexpectedly in October for the second consecutive month, raising optimism the labour market was stabilizing after taking turns adding and destroying jobs all year.
Canadian employers added 43,100 jobs in October, following a gain of 74,100 the month before. The growth rate was well above forecasts, which called for 5,000. September and October marked the first back-to-back months of job creation all year, official data showed.
Compared to year-ago levels, employment increased 1 percent or 182,000 with growth in September and October accounting for two-thirds of the total gain.
The jobless rate declined to 6.5 percent from 6.8 percent, the lowest since 2008.
South of the border, employment figures remained positive, as the US economy added 214,000 payrolls in October following an upwardly revised gain of 256,000 in September, the Labor Department reported Friday. The unemployment rate declined to 5.8 percent from 5.9 percent, a new six-year low.
Unlike the United States, Canada’s labour market has been a source of concern all year, as domestic uncertainty and a struggling export sector have weighed on hiring plans. The Bank of Canada, which has held its trend-setting interest rate at 1 percent for more than four years, does not expect exports to fully recover from the 2008-09 financial crisis, putting more pressure on other sectors to fill that void.
“Canada’s export sector not only cut back on production and laid off workers, many companies restructured, many simply disappeared,” BOC Governor Stephen Poloz said earlier this month in a speech to the Canadian Council for Public-Private Partnerships.
Declining oil prices are also expected to weigh on Canada’s growth efforts. Falling oil prices, Poloz fears, could shave a quarter percentage point off Canadian GDP in 2015. Given that Canada is expected to grow 2 percent to 2.5 percent next year, this could prolong or even widen the output gap, which is the difference between GDP and potential GDP.
In the BOC’s view, Canada’s economy will operate below capacity for the next two years, giving policymakers plenty of scope to keep interest rates highly accommodative until at least the middle of next year.
The BOC will publish its bi-annual Review on Thursday, featuring articles related to the Canadian economy and monetary policy. The five articles published in the Spring Review covered a variety of topics, including the Canadian and US labour markets, oil prices and the rise of digital currencies.
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