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USDCAD Edges Higher Following Jobs Data

H.S. Borji
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Stronger than forecast jobs data supported the US dollar on Friday, as the USDCAD made another attempt at reclaiming the 1.25 level after a week of volatile trade.

The USDCAD climbed to a session high of 1.2476 on Friday. It would later consolidate at 1.2472, advancing 40 pips. The pair faces initial support at 1.2349 and resistance at 1.2543. The USDCAD has traded below 1.26 for much of the week as risk sentiment crept back into the picture. The US dollar was back on the offensive on Friday, as a stronger than forecast nonfarm payrolls report boosted speculation the Federal Reserve may be interested in a midyear rate hike as was previously forecast.

US employers added 257,000 jobs in January, following an upwardly revised gain of 147,000 in November and December combined, the Labor Department reported today in Washington. The January growth rate was much higher than the median estimate calling for around 234,000.

Revised data showed the US economy added 323,000 jobs in December compared to an initial estimate of 252,000. The November reading was revised up to 429,000 from 353,000, the biggest monthly increase in four-and-a-half years.

January marked the twelfth consecutive month employers added more than 200,000 payrolls, the longest such stretch since the mid-1990s. The unemployment rate edged up slightly to 5.7 percent from 5.6 percent as more workers entered the labour force. The labour force participation rate increased to 62.9 percent from 62.7 percent, official data showed.

Average earnings rose 0.5 percent in January after declining unexpectedly in December. Year-on-year, wages increased 2.2 percent.

The US dollar was stronger across the board on Friday. The US dollar index, which tracks the dollar’s performance against a basket of six currencies, rose 0.92 percent to 94.43.

Gains for the USD/CAD were contained by a stronger than expected Canadian jobs report. The world’s eleventh largest economy added 35,400 jobs in January, well above the median estimate of 4,500, Statistics Canada reported today in Ottawa. However, the gains were attributed to a surge in part-time work, which offset a decline in full-time employment.

Canada’s participation rate held steady at 65.7 percent, the lowest level since 2000. As a result, the unemployment rate fell to 6.6 percent from 6.7 percent.

Employment in natural resources declined 8,800 in January, pointing to bigger layoffs as a result of declining energy costs. Gas prices have fluctuated significantly over the past week. The price of West Texas Intermediate increased 2.2 percent to $51.60 a barrel on Friday. Brent crude was up 2.5 percent to $58.01 a barrel.

According to the Bank of Canada, cheap fuel costs are “unambiguously negative for the Canadian economy.” Real GDP growth is expected to average 1.5 percent in the 12 months to June, nearly one full percentage point below previous forecasts. The BOC unexpectedly cut its benchmark interest rate last month after more than four years of no change. According to analysts, the BOC could reduce interest rates by another quarter percentage point later this year, bringing the overnight rate to 0.5 percent.

In a separate report, the federal statistics agency said Canadian building permits climbed 7.7 percent in December after plunging 13.6 percent the previous month. Economists forecast an increase of 5 percent. Non-residential permits rose 22.9 percent, the biggest increase since May 2014.

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