The Canadian dollar advanced to a three-month high against its U.S. counterpart on Friday amid the release of stronger-than-expected domestic jobs data, which boosted expectation for a Bank of Canada interest rate hike as soon as this month.
On Friday the Canadian dollar jumped roughly 0.6 percent, closing at C$1.24079 to the greenback after it has already climbed over 3.64 percent for the past two weeks.
The Canadian economy added 78,600 jobs for the second month in a row in December on a surge in part-time employment, which contributes 54,900. Statistics Canada also said the jobless rate dipped to a 41-year low of 5.7 percent.
A robust economy reflected by jobs data increases chances of a hike at the next rate decision on Jan.17, which has been rising to more than 60 percent from 35 percent before the data, the overnight index swaps market indicated.
Furthermore, an increase in oil price, one of Canada’s major exports, is also seen as a driver to boost economy.
However, the U.S. dollar continued to dip amid worse-than-expected December payrolls gains. U.S. job growth slowed more than expected in December amid a decline in retail employment, but a pick-up in monthly wage gains pointed to labor market strength that could pave the way for the Federal Reserve to increase interest rates in March.
“Gross domestic product growth is expected to reach 2.5 percent in 2018, in line with overall Fed estimates, as well as a modest boost to the labor force and productivity, which has been surprisingly weak through the recovery from recession”, said John Williams, the Fed President in San Francisco.
He also commented that The Federal Reserve should raise interest rates three times this year given the already strong economy will get a boost from tax cuts, and can tighten more or less aggressively if needed.
The tax reform may not be that effective to boost economy as what policy makers thought. The Trump administration argues the tax cuts will boost both business and consumer spending. But the individual income tax cuts are skewed toward higher-income households, which economists say have a low propensity to consume more as taxes fall.
Additionally many economists also believe companies will use much of the windfall on stock buybacks and debt reduction rather than capital expenditure.
Technically on the daily price with the Ichimoku technical study applied, the breakout of price on Jan. 4th led to further decline as the cloud of Ichimoku is seen as a filter. The recent outlook for the USD/CAD is bearish at the moment since it already broke out the July 26th’s low.
Moreover, with technical applied in MACD, it is still in the descending momentum, with no clear evidence of trend reversal at this moment.
Figure 1: USDCAD Daily
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