September 17, 2021

The Canadian dollar consolidated yesterday’s gain in a subdued overnight session.

Wednesday’s disappointing ADP employment results led to a downgraded forecast for today’s U.S. non-farm payrolls report. Traders are positioned for NFP employment gains to fall well short of the 750,000 forecast.

A weaker than expected result suggests Fed Chair Jerome Powell’s view that the employment picture remains very weak and that it is too soon to start tapering or reduce monetary support.

If NFP surprises to the upside, especially if guesses for one million new jobs are accurate, the U.S. dollar will soar with gains exacerbated by existing short U.S. dollar positioning.

The U.S. dollar will likely rally even if today’s result is exactly as predicted or only slightly lower.

The Canadian dollar rallied on the back of broad U.S. dollar selling pressure but got an added assist by the rise in oil prices.

West Texas Intermediate (WTI) has risen from $67.10/barrel on Monday to $70.29/b today despite the Organization of the Petroleum Exporting Countries increasing production and signs China’s economy is slowing. Caixin China Serves Purchasing Managers Index fell to 46.7 in August, down from 54.9 in July.

Canadian dollar traders are also ignoring weak domestic data. Tuesday Statistics Canada reported Q2 Gross Domestic Product fell 1.1% q/q, which was well below the 2.5% q/q forecast. The “flash” estimate for July is a mere 0.4%. Supply chain issues played a major role, but regardless the domestic economy is not recovering at the pace previously anticipated.

Traders are also ignoring the latest promise from Justin Trudeau to increase spending by $75 billion, which is on top of the nearly $400 billion deficit already in place.

Perhaps traders will get more clarity on the Canadian dollar direction next week.

The Bank of Canada monetary policy meeting is September 8. It is a statement-only affair, which suggests there won’t be any market-moving announcements.

However, Governor Tiff Mackem speaks about monetary policy the next day. Nevertheless, weak economic data and rising delta-variant coronavirus cases suggest monetary policy will remain unchanged.

Next week is a big week for EUR/USD traders. The European Central Bank monetary policy meeting is Thursday. Eurozone inflation spike well above the ECB’s target level, which has raised speculation that policymakers may announce a tapering plan.

Monday is a holiday in the U.S. and Canada, which means trading activity will likely evaporate after lunch.

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