December 1, 2021

The Canadian dollar is trading at the whim of U.S. dollar sentiment. This morning that sentiment is mildly bearish, thanks to the lower-than-expected ADP employment data released yesterday. ADP reported the US added 374,000 jobs in August.

Forecasters expected a gain of 613,000.

Traders immediately dialed back expectations for Friday’s nonfarm payrolls (NFP). The weak jobs data reduces pressure on the Fed to begin tapering.

However, the correlation between the ADP and NFP results is poor. Traders selling US dollars in anticipation of a soft NFP result may be seriously disappointed. An upside surprise to the NFP 750,000 forecast would renew taper and rate hike talk and boost the US dollar.

The Organization of the Petroleum Exporting Countries confirmed it would increase September production by 400,000 barrels per day to the dismay of some traders. It thought the resurgence of COVID-19 Delta-variant cases and slowing growth in China would force the cartel to delay the increase.

WTI oil prices remained steady, in part because OPEC raised its 2022 oil demand forecast to 4.2 million barrels per day from 3.28 million b/day. Prices are also underpinned by the shutdown of U.S. oil rigs in the Gulf of Mexico.

The Canadian dollar is getting some support from firm crude prices. A weak Canadian Merchandise Trade Report (forecast $1.48 billion vs June $3.22 b) will not impact FX.

The overnight session was choppy, but ranges remained intact.

EUR/USD traded in a tight $1.1835-$1.1855 range and is at the top of that band in early New York trading. Prices are supported by the weak ADP report and downgraded NFP forecasts. In addition, recent comments from European Central Bank officials have led to speculation that the ECB may announce a tapering program at next week’s meeting. The EUR/USD technicals are bullish above $1.1770.

GBP/USD tracked EUR/USD higher, rising from $1.3769 to $1.3800, in an uneventful session. Prices may struggle to post further gains in part because a spate of weak economic reports has reduced the risk that the Bank of England would tighten.

AUDUSD rallied to 0.7391 from 0.7357 due to broad US dollar weakness and a record trade surplus. NZD/USD followed AUD/USD higher, rising from $0.7059 to $0.7093.

U.S. merchandise trade and weekly jobless claims reports are ahead.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians

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