Canadian Dollar Strength will rely on Employment Situation 8 May 2013
USD/CAD Daily May 2013
The Canadian dollar has been able to benefit from recent US economic weakness which was prevalent prior to Friday’s US employment report, which surprised market participants. The Loonie (Canadian Dollar) has rallied back from the 1.03 level hit in mid-April and is poised to test the par level ahead of this Friday’s Canadian employment report.
During the prior week, the US released a plethora of economic data, which showed mixed results. At the beginning of the week, ADP released its private payroll report, which showed that employment in the private sector increased by 119,000 jobs compared to the 150,000 expected by economists. The softness in the data, resulted in a minor sell-off of riskier assets, which seemed to help the Canadian dollar gain traction.
Later in the week, ISM released its manufacturing report, which showed that although the US continues to remain in expansion territory at 50.7, the index levels have a negative trajectory moving closer to the 50 boom/bust level. The employment sub-component as well as the new-orders subcomponent were worse than expected, making it difficult for investors to believe the US economy is on the right track.
Later in the week, investors were treaty to a better than expected employment report, released by the Department of Labor. The report surprised to the upside, but the reaction was out of the ordinary given the data released earlier in the week. Analysts had reduced expectations for the employment change, given the weak results of the ADP report.
According to the Bureau of Labor Statistics, non-farm payrolls grew at 165,000 in April, compared to the 150,000 expected by economists. The whisper number were even lower closer to 100,000. The big surprise to market participants was the revisions to the prior two months especially the weak March number that had previously shown a gain of 88k jobs.
The combined February and March revisions showed a gain of nearly 115,000 jobs, with 50K coming in March. The number of hours worked during April declined by .2% which is considered a negative to the overall strength of the increase in jobs, but average hourly earnings increased by .2% which is positive as it helps the FOMC move closer to its inflation target. The US unemployment rate ticket down to 7.5% but some of this was a function of the participation rate which remained at historical lows.
During the week ending May 10, 2013, the Canadian government will be releasing its employment report. This release should have a significant impact on the USD/CAD. Recent data has been mixed, and a return to growth in jobs in a manner similar to the US should give strength to the loon (Canadian Dollar).
The currency pair is likely to test support levels near par, and a close below that 1.00 would likely lead to a test of the January lows near .9830. Momentum on the currency pair is negative with the MACD (moving average convergence divergence index) printing at the lowest levels since March 2013. The RSI (relative strength index) is printing near 39, which is at the lower end of the neutral range.
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