Canadian dollar rallies as employment tops forecast

Employment in Canada increased 35,800 in August after unexpectedly contracting 9,300 in the previous month, which exceeded forecasts for a 30,000 rise.

Meanwhile, the jobless rate unexpectedly advanced to 8.1% from 8.0% in July as discouraged workers returned to the labor force, and conditions are likely to improve going forward as the economic recovery gathers pace. The breakdown of the report showed full-time positions increased 79,900 following the 139.0 contraction in July, while part-time employment slipped 44,100 to mark the first decline in three-months. Given the recent developments, the Bank of Canada may see scope to normalize monetary policy further throughout the remainder of the year as businesses continue to increase production and employment.

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Speculation for another rate hike in October would instill a bearish outlook for the USD/CAD, which could lead the exchange rate to retrace the advance from August. The dollar/loonie immediately spiked to a low of 1.0287 following the better-than-expected data, but the corrective retracement subsequent to the release has pushed price action back above 1.0300 going into the North American trade. As equity futures foreshadow a higher open for the U.S. market, risk appetite could drive the exchange rate back towards the lows as the economic docket remains fairly light for Friday.

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