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04.12.2022 03:17 PM
USD/CAD. "Canadian Nonfarm" remained in the shadow of the U.S. release

Key labor market data was released in the U.S. and Canada on Friday. Traders of dollar pairs were focused on the US NonFarm report, which turned out to be contradictory, despite the fact that many components of the report came out in the green zone. The Canadian release was in the shadows, but its importance should not be underestimated, especially in the context of the USD/CAD pair, and especially - in light of the rumors that the Bank of Canada will slow down the pace of monetary policy tightening to a 25-point step.

In terms of dry numbers, the situation is as follows. Canada's unemployment rate unexpectedly fell to 5.1% (the lowest since June of this year), contrary to forecasts of an increase to 5.3%. The growth rate of employment was, in principle, at the forecasted level (+10,100 against a forecasted growth of 10,500). However, it is important to take note of a few nuances here. First, in the previous reporting period there was an unusually strong growth (108,000), due to simultaneous and dramatic growth of the number of jobs in manufacturing, construction, and hospitality. Therefore, most experts initially did not expect strong figures from November: the key forecasts ranged from 5-10,500.

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Secondly (and much more importantly) - the number of people employed full-time increased by 51,000, while the indicator of part-time employment, on the contrary, showed negative dynamics. According to Statistics Canada, this trend is already steady. Since last November, when full-time employment surpassed pre-pandemic coronavirus levels for the first time, the number of full-time workers has increased by 460,000. As we know, full-time positions imply higher wages and social security, having a beneficial effect on Canadians' consumer activity and, ultimately, on the country's inflationary growth. So Friday's numbers in this context are positive, despite the de facto modest increase.

Overall, Friday's report should be viewed through the lens of the Bank of Canada's December meeting, where the central bank may further slow the pace of monetary policy tightening and hint at its willingness to curtail its hawkish course. Take note that at their previous meeting, the members of the Canadian central bank raised the rate only by 50 points, while the market expected 75-point growth. Such an unexpected turn hit the loonie, which was under pressure all over the market.

In the run-up to the December meeting, the market is once again abuzz with dovish rumors. In particular, according to the currency strategists of RBC Capital Markets, the Bank of Canada will raise the rate by 25 points. In addition, the central bank may make it clear that it can finish/suspend the process of tightening monetary policy. But remember that central bank representatives have already voiced the appropriate signals.

Thus, the deputy head of the Bank of Canada Carolyn Rogers recently said that the end of the tightening cycle of monetary policy is "near". She added that the need to raise interest rates to reduce inflation will remain "in the near future". A little earlier, Bank of Canada Governor Tiff Macklem also mentioned that the central bank was "nearing the end of the tightening phase". In addition, he supported the idea of slowing the pace of rate hikes. According to him, the central bank made the relevant decision amid growing concerns about the global economic downturn. However, he refused to talk about further prospects, voicing only a rather unambiguous phrase that "we're trying to balance the risks of over- and under-tightening monetary policy."

As we can see, the fundamental signals are ambiguous, due to which USD/CAD traders can not determine the vector of price movement. Both the Bank of Canada and the Federal Reserve, on the one hand, show a hawkish attitude, but on the other hand, slow down the pace of tightening of the monetary policy. However, there is a significant difference: representatives of the U.S. central bank state in unison that they are not ready to pause in raising the rate. While the Canadian central bank seems close to such a decision.

In my opinion, the pair will trade in a flat till December 7 (when last meeting of Bank of Canada of this year will take place), in a wide price range of 1.3390 (the average line of the indicator Bollinger Bands on the daily chart) - 1.3570 (the top line of Bollinger Bands on the same chart). Generally speaking, the loonie is in limbo, on the threshold of important tests, the first of which will take place this coming Wednesday.

Irina Manzenko,
الخبير التحليلي لدى شركة إنستافوركس
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