Inflation numbers in the US and Canada likely to undermine Fed’s patient approach and speed up rate hikes in Canada.
US & Canadian Dollar Weekly Commentaries
Though the North American economy seems to be recovering; there were some holes in last week’s US and Canadian jobs reports, but the details were mainly solid. In the U.S., significant upward revisions to September's U.S. NFP accompanied by better-than-expected headline gain of 531k amid strong private sector, wage increases, and a drop in unemployment propelled the greenback higher. The only thorn in the ointment was probably low labor force participation.
The headline job growth in Canada was disappointing, but it was the fifth straight monthly increase, and full-time positions increased by 36,000. Wages increased by 2.1 percent. Furthermore, the labor market is making significant progress toward the goals that Governor Macklem stated in July would represent a fuller recovery in the economy (500k more jobs and a return of Total Hours Worked to pre-pandemic levels); jobs have increased by just over 400k since then, and Total Hours Worked have recovered to 99.5 percent of the level in February 2020. The Canadian jobs numbers back up the idea of quicker rate hikes in Canada, as suggested by the Bank of Canada last week. Since the jobs data, USD/CAD gains have been contained in the upper 1.24s; crude oil prices have fallen a little and spreads against the CAD have narrowed slightly, but trends remain broadly favorable of the CAD. Based on various fair value models, the CAD is still considerably undervalued with most suggesting that the USD/CAD should be trading closer to 1.2200/50.
The week ahead:
On the data front, the week ahead is light. There are no Canadian data releases scheduled, and no speakers from the Bank of Canada are scheduled. However, due to the Federal holiday on Thursday, inflation statistics (PPI and CPI) and weekly claims figures will be released on Wednesday.
In the U.S. a few Fed policymakers are giving speeches, but not all of them are on the economy or the policy outlook. On Friday, the U.S will release CPI and PPI data which is forecast to jump to 5.8%, the highest level since the 1990s, further undermining the Fed's "patient" approach to rate hikes. The USD/CAD trading range for the week is 1.2385 – 1.2630.
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