Ontario and British Columbia were the two big losers in terms of jobs growth, Ontario lost 80,100 part-time jobs, nationally the total losses were 92,000 part-time. British Columbia normally a leader in jobs growth surprisingly showed a negative number. This news although a bit negative is not the dark cloud on the Canadian dollar. The Nafta talks continue to place the currency in a holding pattern as there has been no news of any significance. It would appear that the negotiations will last right to the end of September and possibly mid-October, therefore there will be no clear trend until then.
USDCAD 1.3165, 1.3153, 1.3140 1.3188, 1.3200, 1.3208
USD-CAD is becalmed in the lower 1.3100s after correcting from yesterday’s seven-week high at 1.3226, with market participants on tenterhooks into the final day of this week’s trade talks between the U.S. and Canada, and into Canada’s August employment report. Any news of a breakthrough on the trade front would likely spark a sharp tumble in USD-CAD. As for Canada’s August employment, we expect a 10.0k headline rise after the 54.1k gain in July. The unemployment rate is projected at 5.8%, which would match July’s figure, while the pace of wage growth is expected to slow further. USD-CAD support at 1.3113-15.
EUR-USD has been holding a narrow range in the low 1.1600s as markets anticipate today’s release of the August U.S. jobs report. We’re forecasting a 210k increase in employment, with a dip in the unemployment rate to 3.8%, and a 0.2% increase in earnings. A 25 bp Fed rate hike is already priced in, and this will merely seal the deal more tightly. There is some downside risk after the “disappointing” 163k rise in the ADP private payrolls survey, which has led some to look for a softer jobs number today. In light of this, an outcome in line with our forecast, or the median forecast for 190k, would likely spark a Dollar rally. Despite recent gains, EUR-USD remains amid an overall bear trend, one that’s been unfolding since mid April. Incoming U.S. data should firm-up expectations for a 25 bp Fed hike in December, which would follow an already fully-anticipated 25 bp hike in September. Fed fund futures have been discounting better than 60% odds for a December hike. We would also expect the Dollar to appreciate in the scenario of sustained risk aversion in global markets. EUR-USD has resistance at 1.1694-95.
Sterling has been enjoying a calm following the phase of Brexit-related volatility earlier in the week. Cable is holding steady in the lower 1.2900s while EUR-GBP has settled near the 0.9000 mark. Brexit remains front and centre. UK Chancellor Hammond warned of budget cuts it the event of a no-deal exit from the EU, while government ministers have been saying that there are only two choices, either a deal based on its Chequers proposals (key parts of which are a no-go for the EU, as clarified last weekend by EU negotiator Barnier) or a no-deal exit. Regarding the latter, a minister was photographed yesterday carrying documents revealing a secret government codename for no-deal contingency planning: Operation Yellowhammer. Our view is that leaving without a new agreement would be simply be too disruptive and carry massive political risks, as it would see all 759 treaties the UK has with the EU halt overnight on March 29 next year, while, simultaneously, the 90% of UK exports that go to either the EU or one of the 60 nations covered by EU trade agreements would instantly go from zero or low tariffs to facing the highest levies under the WTO system, with the UK facing protracted horse-trading over WTO schedules and quotas and multiple years of negotiating to establish new trade and cooperative agreements. With neither the Chequers plan or the no-deal popular, there is the risk of a leadership challenge on PM May, and/or the possibility for a second Brexit referendum or even an outside chance of a general election.