The Canadian Dollar began the week around USD/CAD1.2430 but this proved to be pretty much the low of the week for the pair. Since the beginning of the year, USD/CAD has been largely contained in a range from the mid 1.22’s to 1.26, even though we have seen extreme volatility in equity markets, a 25bp rate hike from the Bank of Canada and ongoing uncertainty over the renegotiation of NAFTA. As the week progressed and the USD was persistently well-bid, so USD/CAD moved higher on successive days and in Thursday’s New York session, the pair rose through the top of the range for a couple of hours before then returning to the 1.25’s.
In truth, there were very few highlights in what was a particularly dull week for Canadian news and the Canadian currency. Bank of Canada Senior Deputy Governor Carolyn Wilkins gave an interview to Reuters Thursday evening saying Canada’s high household debt is the biggest vulnerability facing the economy, while uncertainty about NAFTA is weighing on the outlook. “Every household is going to find it more or less difficult, so some households might find it extremely difficult, others will just need to tighten their belt a bit, but overall as you can see from our projection, we expect the economy to continue to grow, we expect consumption to continue to grow. I think we are being very clear that the biggest vulnerability to the Canadian economy is coming from high household indebtedness.” Wilkins declined to give “a running commentary” on recent economic data, but said that although GDP growth in the fourth quarter got off to “not the strongest start,” the latest data remained in line with forecasts.
The only important data point was Friday’s employment report where consensus looked for a 10k rise after a 78k gain in December. Instead, Stats Canada reported employment fell by 88,000 in January. Part-time employment declined (-137,000), while full-time employment was up (+49,000). At the same time, the unemployment rate increased by 0.1 percentage points to 5.9%. On a year-over-year basis, employment grew by 289,000 or 1.6%. Gains were driven by increases in full-time work (+414,000 or +2.8%), while there were fewer people working part time (-125,000 or -3.5%). Over the same period, hours worked rose by 2.8%. USD/CAD surged to 1.2645 when the numbers were announced as computer-driven algorithms responded to the headlines but within a few minutes, nearly all the gains had evaporated when it was realized that all the job losses were in part-time and seasonal employment. The moral of this tale is not to rely on the machines but to pay for a good FX Strategist who could have spotted this immediately! The Canadian Dollar ended the week at USD/CAD1.2580, AUD/CAD0.9825 and GBP/CAD1.7390.