Canadian Currency and Rate Talk
Canadian Rate cut decision tomorrow
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Weak Undertone Weighs on Loonie Ahead of Canada Jobs Release
Wednesday, April 7, 2004 8:17:00 PM
By Vicki Schmelzer
NEW YORK, April 7 (MktNews) - While off the best levels of the day, dollar-Canada remained somewhat buoyant ahead of the release of key Canadian employment data, with a weak undertone weighing on the loonie, traders said.
Dollar-Canada was trading at C$1.3095 at 2:48 p.m. EDT on Wednesday, off the day's highs at C$1.3171 and up from the day's lows at C$1.3062, both seen during the U.S. session.
Traders pointed out that when compared to other dollar pairs, mostly trading at the day's dollar lows, dollar-Canada has an improved tone, somewhat surprising given the large scale U.S. dollar selling seen against the other majors earlier.
The loonie's weakness was attributed to hefty Canada/yen sales, triggered by dollar-yen's break below pivot support at Y105.15/25 as well as position unwinds ahead of the Canadian employment report.
Official Canadian jobs data will be released at 7:00 a.m. EDT, on Thursday, a day earlier than usual because of the Easter holiday.
The consensus expectation is for March payrolls to rise by 15,000 to 25,000, with some estimates as high at 35,000, analysts said.
An "as-expected" report would keep expectations high that the Bank of Canada could lower Canadian interest rates next week at the April 13 meeting, while an "above estimates" number could table prospects for further easing, they explained.
"A no-rate-cut outcome would push the loonie stronger," concluded Avery Shenfeld, economist at CIBC in Toronto.
"A cut is priced into current short-term interest differentials, which would widen if the Bank of Canada stands pat," he said.
The accompanying statement should also offer insight into the BOC's thinking.
Any sign that the BOC is comfortable with the current Canadian dollar level would be considered bullish for the loonie, Shenfeld said.
"But much more likely, the bank is reluctant to see the loonie press on below C$1.3000, that being too much of a challenge for manufacturers in too short a period of time to adjust, he said.
"Anything other than a very strong jobs report will keep the rate cut alive," Shenfeld added.
CIBC looked for a gain in the 10,000-15,000 range, a modest bounce-back after a 21,000 decline in February, with the unemployment rate remaining steady at 7.4%.
Nick Bennenbroek, foreign exchange economist at Brown Brothers Harriman, agreed that a consensus gain of 15,000 to 25,000 may not be enough to change the Bank of Canada's outlook for the economy.
"A gain of that magnitude in March will merely offset one of a similar size in February," he reminded.
"I'd have to think the increase would have to be on the order of 40,000 or greater to think 'Is this going to change the central bank's view,'" Bennenbroek said.
"It would be an encouraging result, but not enough yet -- it's only one number," he added.
Stewart Hall, currency strategist at HSBC, said it was not clear whether a 35,000 to 40,000 increase in jobs would be enough to sway the BOC into not easing next week.
"It's positive, but it's not a deal breaker," he said.
If policy is unchanged, the BOC's accompanying statement should offer insight into the next monetary policy move, Hall said.
"Another ambiguous statement would tend to signal a degree of comfort at the BOC," he said.
On the FX front, Hall expected ongoing jitters ahead of the April 13 meeting, with scope for a test of C$1.3330 in the short term.
Despite the BOC's easing policy in January 2004, the market has continued to find Canadian interest rates attractive, preventing more sizable losses in the loonie (recent dollar-Canada highs at C$1.3586 seen March 3).
Recent fluctuations in dollar-yen above and below key support in the Y105.00/20 area have had spillover effects on the Canadian dollar, with the loonie rising and falling accordingly with great gusto, traders said.
"As for the day-to-day movements in the Canadian dollar, at this point, it's mostly just trading noise in a currency that is, from a bigger picture, moving sideways," observed CIBC's Shenfeld.
"Lately, the largest Canadian dollar swings have come from trading against other crosses, as investors think and rethink about which non-dollar currency is the best bet if the big dollar resumes its 2003 downtrend," he said. --Vicki Schmelzer, (212) 669-6438; e-mail: vschmelzer@marketnews.com |
