The U.S. dollar was upstaged by its Canadian counterpart on Friday following the release of some spectacular Canadian employment data.
Statistics Canada said on Friday that the nation’s unemployment rate fell in December to just 5.7% – the lowest rate in forty years – and that Canadian businesses added 78,600 new jobs. Ahead of the data’s release, economists had forecast unemployment at 6% and jobs growth of just 1,800.
The latest numbers were indicative of a “ridiculously strong” labour market, said Scotiabank’s Derek Holt, and of a “labour market on fire,” according to CIBC Capital Markets’ Bipan Rai.
Needless to say, it was lift-off for the Canadian dollar, which jumped in response to the data by more than a percent against the U.S. dollar, forcing USD/CAD to levels below 1.24 (1.2355) for the first time since September.
Against the yen and euro, the Canadian dollar rose to sixteen-week and seven-week highs respectively. CAD/JPY fetched 91.58 at one stage in the day and EUR/CAD sank to 1.488.
With two outstanding reports in as many months (+79,500 jobs in November), traders are now convinced that the Bank of Canada will raise interest rates again on January 17th. Pricing in derivatives markets is suggestive of a near-80% probability of the bank hiking its benchmark rate by a quarter-point to 1.25%. The BoC raised rates twice in 2017, making it one of only two major central banks (together with the U.S. Federal Reserve) to have entered a policy tightening cycle.
The U.S. of course had its own jobs report on Friday – the one we all wait for, U.S. non-farm payrolls – with data from the Bureau of Labor Statistics showing fewer-than-expected new jobs in December (148,000 versus 190,000 expected) but simultaneously a pick-up in average hourly earnings (0.3% versus 0.1%) and stability in the unemployment rate (4.1%), which holds close to long-term lows.
Broadly, the dollar sank on the news, although it did gain modestly against the euro.
After recording its worst annual performance in fourteen years in 2017, the dollar has experienced a rough start to the year. FX traders have ushered in 2018 with renewed dollar pessimism, mainly driven by expectations for the rest of the world’s central banks to catch up with the Federal Reserve in terms of policy bias.
The week ended with the U.S. Dollar Index – a measure of the dollar’s performance against a basket of currencies – falling for the third consecutive week to a sixteen-week low of 91.75.
Given the prevailing market environment, currencies in the Asia-Pacific region continue to make waves against the dollar.
With the exception of the Japanese yen, which behaves fundamentally differently from other, riskier Asian currencies; and the Hong Kong dollar, which is pegged to the U.S. dollar and which trades within a minuscule 0.1% range; all Asia-Pacific currencies made gains this week against the “greenback.”
A list of notable Asia-Pac currencies would include the Indian rupee, which gained for an eighth consecutive week (USD/INR 63.19); the remarkable Malaysian ringgit, which made it ten straight weeks of gains (USD/MYR 3.995); the Thai baht, which had its best week against the dollar in nine months; and also the South Korean won and Taiwan dollar, both of which rose to multi-year highs (USD/KRW 1061.5, USD/TWD 29.449).
Also worth mentioning is the Singapore dollar (USD/SGD 1.3268), which climbed to long-term highs (USD/SGD lows) after breaking the important technical level of 1.335. Heightened interest in the currency followed data on Tuesday which showed Singapore GDP growing at 3.5% – the country’s fastest rate of economic growth in three years.