- Canada enjoyed two superb jobs reports in November and December and expectations remain high for January.
- A downwards correction has better chances, and the Canadian dollar is somewhat more vulnerable.
Too good for too long
Canada gained around 79K positions in both November and December. The back to back leaps in jobs can be compared to gains of approximately 700K positions in the US, for two months in a row. The Canadian economy seems to have accelerated towards the end of the year after pausing in the summer. The increase in jobs is also reflected in a fall in the unemployment rate to 5.7% and a rise of the participation rate to 65.8% in the report for December, both healthy reads.
The expectations for January remain high. As the economic calendar shows, a gain of 44.1K jobs is expected in January. This is still a hefty rise in positions, at the top end of the normal ranges.
High expectations may lead to significant disappointments. A more normal rise in jobs, around 20K, has higher chances than double that amount. Moreover, a correction, such as a drop of some 20K posts, cannot be ruled out either. A drop may be real or just a correction to previous months by Statistics Canada. In any case, a disappointment may lead to a slide in the C$.
CAD is vulnerable to amid the volatility
Market volatility has significantly risen in 2018 with wilder moves in the past week. The crash of stock markets is negative for the loonie, which is a risk currency. So, a negative data point in a top-tier indicator may trigger a significant downfall.
The Canadian dollar is also vulnerable due to the slip in oil prices. Prices of the black gold have dropped from their highs. While commodities are remarkably stable in comparison to stocks, the Canadian dollar does not enjoy support from its top commodity.
All in all, the path of least resistance seems to be to the downside.
USD/CAD levels to watch
The top line to watch is 1.2920, a triple-top that looms over the chart. 1.2665 provided support to the pair when it traded at lower levels. 1.2580 capped the pair in early January and remains important.
1.25 is a round number that the pair is struggling with. 1.2350 was a swing low in January and 1.2250 was the low point in February, before the pair climbed higher.
More: USD/CAD neutral-bullish short-term – Scotiabank
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