USD/CAD Tests Support as Negative Momentum Accelerates
The USDCAD moved lower in Wednesday and is poised to break down through trend line support. As traders await the Fed minutes, the focus has turned to Canada’s Oliver who will announce balanced budget legislation today, committing Canada to keep a balanced budget, except under extraordinary circumstances. Such circumstances appear to include a recession, a war or a natural disaster where the costs exceed 3 billion in a fiscal year.
Canada’s labor market is expected to deliver a 5k drop in jobs during March after the 1k dip in February as the oil price shock continues to percolate through the economy. Erosion in total jobs that is driven by a loss of resource sector positions would track an impact on the economy from the oil shock that roughly matches the Bank of Canada’s outlook. With no further economic data ahead of the April 15th policy announcement and Monetary Policy Report, an as-expected employment report would maintain expectation for no change in rates next week.
The unemployment rate is expected to nudge higher to 6.9% in March from 6.8% in February, leaving the loftiest rate since the matching 6.9% in September of 2014. The unemployment rate jumped to 6.8% in February from 6.6% in January as more people looked for work. A further infusion of people looking for work is seen lifting the rate in March.
An improvement in full time jobs was good news, but the split between public and private sector jobs was disappointing. Private sector jobs fell 29.0k in February after nearly flat readings in December and January. Public sector jobs rose 24.3k in February.
What was surprising was that average hourly wages grew at a 1.8% y/y pace in February after the 2.0% clip in January. Wage growth remains at the bottom of the 1.4% to 3.8% range seen since 2012. Wages remain consistent with a subdued compensation cost backdrop and ongoing spare capacity.
The improvement in the labor market has helped the Canadian dollar recover and a break of trend line support at 1.2370 would generate increasing negative momentum in the exchange rate. Momentum has already turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.
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