Canadian Dollar Gets Boost from Solid Jobs Data
Like the broader stock market, the Canadian dollar was in free fall over the last three months of 2018. It’s been a different story though in 2019, with the loonie rising against the U.S. dollar. The Canadian dollar got an additional boost on February 8 on unexpectedly strong January jobs growth. Despite the Canadian dollar’s bullish run, there are signs the loonie has hit a ceiling, with a number of external factors weighing down the near-term outlook for the loonie.
The Canadian dollar has been on a rollercoaster ride since the start of October. The Canadian dollar entered the fourth quarter of 2018 with the Canadian dollar worth USD$0.777. It ended the year at USD$0.732; a three month plunge of 5.8%. The Canadian dollar struggled against the greenback thanks to strong economic data coming out of the U.S., concerns about economic growth in Canada, and weak oil prices.
It’s been a different story in the early stages of 2019. The loonie entered 2019 looking like a great short bet for investors, instead, it was one of the strongest currencies in January. The Canadian dollar entered January at USD$0.733 and ended the month at USD$0.762; for a one month gain of 3.9%.
Part of this gain can be attributed to a 15% rally in oil prices and the U.S. Federal Reserve saying it would be patient with further rate hikes. This helped not just the Canadian dollar rebound, but the Australian dollar and New Zealand dollar rose higher against the greenback. At the same time, investors sold off the Swiss franc and Japanese yen.
Since the start of February though, the loonie has been struggling to hold onto its January gains. The dollar entered February at USD$0.761 and closed on Friday, February 8 at USD$0.753.
The loonie got a boost after it was announced that the Canadian economy added an unexpected 66,800 new jobs in January. More people looking for work also push the unemployment rate up to 5.8% from 5.6%. Economists were expecting the country to add 8,000 jobs and for the unemployment rate to tick up to 5.7%.1
Despite the pleasant surprise on the jobs front, there are many external factors that suggest the Canadian dollar will not be able to hold onto its recent gains against the U.S. dollar.
First, the Bank of Canada said in January it would be cautious about raising its key lending rate. Meaning, the Canadian economy is not in a position to weather additional rate hikes. This is certainly not a green light for currency investors.
The Canadian dollar is also facing pressure from lower oil prices, the slowing economy in Europe, the trade spat between the U.S. and China, and fears of a “No-deal” Brexit. The bearish sentiment does not have a direct impact on Canada (save for low oil prices) but it does help boost the U.S. dollar against the rest of the major global currencies, which weighs on the Canadian dollar.
Has the Canadian dollar hit a ceiling? If so, how long will it last?
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The Canadian economy just churned out strong jobs data, but that hasn’t translated into a stronger loonie; there are some who believe the Canadian dollar has hit a ceiling. There are a lot of factors, some obvious some not, that impact the strength of the Canadian dollar relative to the greenback and other global currencies. Trading currencies is not easy, but the currency experts at Learn-To-Trade.com
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- “Labour Force Survey,” January 2019, Statistics Canada web site, February 8, 2019; https://www150.statcan.gc.ca/n1/daily-quotidien/190208/dq190208a-eng.htm?HPA=1
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