Canadian Dollar Jumps on Job Data, Risk Aversion Dominates on Trade War Worries

Risk aversion is the main theme in the financial markets today. Worries over US-China trade tension escalation resurfaced after Trump said he will not meeting Chinese President Xi this month. This came despite Trump’s schedule to meet North Korean leader Kim Jong-Un on February 27-28 in Vietnam, just next to China. Re-escalation in trade tension would drag on the already weakened global recovery. US stocks open sharply lower with DOW losing -100 pts, following weakness in Europe.

The forex markets are relatively steady though as major pairs and crosses are generally staying in Thursday’s range. While Canadian Dollar surges after strong job data, USD/CAD is, so far, held above 1.3229 minor support. Thus there is no clear confirmation of topping yet. Decline is EUR/USD and EUR/JPY lost momentum ahead of weekly close. In particular, EUR/JPY is holding on to 124.36 minor support despite breaching it briefly. AUD/USD also recovers after earlier selloff and is back above 0.7076 support. Traders mildly want to wait for fresh inspiration next week before committing further.

In other markets, DOW is currently down -0.50%. FTSE is down -0.22%, DAX is down -0.78%. CAC is down -0.35%. German 10 year yield is down -0.02 at 0.097, broken 0.1% handle. Earlier in Asia, Nikkei closed down -2.01%. Hong Kong HSI dropped -0.16%. Singapore Strait Times rose 0.04%. Japan 10-year JGB yield dropped -0.0185 to 0.027.

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Canada added 67k jobs in January, CAD surges

Canadian Dollar rebounds strongly in early US session after stellar employment data. The job market grew 67k in January, way above expectation of 6.5k. Employment gains were driven entirely by private sector, which grew 112k. Unemployment rate rose to 5.8%, up from 5.6%, higher than expectation of 5.7%. But that was because “more people looked for work.” Also from Canada, housing starts dropped to 208k annualized rate in January, above expectation of 206k.

Released earlier, Germany trade surplus widened to EUR 19.4B in December. Swiss unemployment rate was unchanged at 2.4%. Japan household spending rose 0.1% yoy in December, below expectation of 0.8% yoy. Labor cash earnings rose 1.8% yoy, matched expectations. Current account surplus widened to JPY 1.56T.

EU Barnier: Will not reopen Brexit agreement, but open to rework political declaration

EU Chief Brexit negotiator Michel Barnier is going to meet UK Brexit Minister Steve Barclay on Monday. Ahead of that, Barnier reiterated that EU will no re-open withdrawal agreement negotiation.

Barnier tweeted: “I am looking forward to meeting @SteveBarclay in Brussels on Mon evening. I will listen to how the UK sees the way through. The EU will not reopen the Withdrawal Agreement. But I will reaffirm our openness to rework the Political Declaration in full respect of guidelines.”

UK PM May to meet Irish PM Varadkar to seek legally binding change to Brexit deal

UK Prime Minister Theresa May will meet Irish Prime Minister Leo Varadkar in a dinner today. May would make use of the opportunity to press for legal binding changes to Irish backstop arrangement in the Brexit withdrawal agreement.

May’s spokesman said “This is about building on the discussions that she had in Northern Ireland and in Brussels yesterday. She will be emphasizing what we are looking for – seeking the legally binding changes to the Withdrawal Agreement that parliament says it needs to approve the deal.”

RBA projects slower rise in inflation and fall in unemployment

Australian Dollar suffers another round of selloff today after RBA revealed rather dovish economic forecasts in the Statement on Monetary Policy. In the summary part, Governor Philip Lowe’s “balanced” turn was echoed.

The first scenario is “further progress in reducing unemployment and bringing inflation into the target range can reasonably be expected.” In this case, higher interest rate “would become appropriate at some point”. However, in other scenarios, “If there were then to be a sustained increase in unemployment and a lack of progress in returning inflation to target, it might instead be appropriate to lower the cash rate.”

RBA now judges ” the probabilities of these two sets of scenarios have shifted to be more evenly balanced than previously.”

In the new economic projections:

  • 2019 year-end growth was revised to 3%, down from 3.25%.
  • 2020 year-end growth was revised to 2.75%, down from 3%.
  • June 2020 unemployment rate was revised to 5%, up from 4.75%.
  • That is, unemployment rate will fall at a slower pace.
  • 2019 year-end CPI was revised to 1.75%, down from 2.25%.
  • 2020 year-end CPI was unchanged at 2.25%.
  • That is, CPI will rise at a slower pace.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3236; (P) 1.3277; (R1) 1.3351; More…

USD/CAD’s sharp fall suggests temporary topping at 1.3329 and intraday bias is turned neutral first. Further rise remains in favor with 1.3229 minor support intact. Above 1.3329 will target 1.3375. Decisive break there should confirm completion of whole fall from 1.3664. In that case, further rise should be seen back to retest 1.3664. On the downside, below 1.3229 minor support bring deeper pull back towards 1.3068 support.

In the bigger picture, structure of the medium term rise from 1.2061 (2017 low) to 1.3664 is not clearly impulsive. Hence, we’d stay cautious on strong resistance from 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 and 1.3793 resistance to limit upside, and bring medium term topping. But in any case, medium term outlook will stay bullish as long as channel support (now at 1.3070) holds. Sustained break of 1.3793 will pave the way to retest 1.4689 (2015 high). Firm break of the channel support should confirm reversal target 1.2061 low again.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
23:30JPYHousehold Spending Y/Y Dec0.10%0.80%-0.60%
23:50JPYCurrent Account (JPY) Dec P1.56T1.52T1.44T
00:00JPYLabor Cash Earnings Y/Y Dec1.80%1.80%2.00%1.70%
00:30AUDRBA Statement on Monetary Policy
06:45CHFUnemployment Rate Jan2.40%2.40%2.40%
07:00EURGerman Trade Balance Dec19.4B18.1B19.0B18.9B
13:15CADHousing Starts Jan208K206K213K214K
13:30CADNet Change in Employment Jan66.8K6.5K9.3K
13:30CADUnemployment Rate Jan5.80%5.70%5.60%

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