CAD
Unlike the counterpart US print, we expect Canadian data to paint a much grimmer picture this afternoon. Markets look for just 25k job additions, while the unemployment rate is seen climbing to 6.8%. Moreover, if we are right and the strength in December’s readings stems from an economic sugar rush fuelled by temporary fiscal support, then risks to this afternoon’s release should be skewed to the downside. But whether or not this translates into USDCAD strength today will depend on the US data too. It would be a surprise if any loonie downside is ultimately delayed until Monday, in keeping with other recent releases, given the range of moving parts for markets to consider.
USD
Today’s payrolls release marks the last significant data point for the dollar this week. It should also be relatively uninformative if the data matches consensus predictions. Markets expect to see 175k jobs added, the unemployment rate remain stable at 4.1%, and average hourly earnings growth of 0.3% MoM. If realised, this would represent minimal change from recent releases, signalling that the US labour market remains solid. It should also be discounted by traders. After all, the survey date of January 12th falls before Trump’s inauguration as President. Given the rapid pace of change since, we are inclined to see minimal readthrough from mid-January job-market conditions to the current state of the economy, leaving the dollar unmoved this afternoon. Admittedly, where there are risks for the greenback, they are likely skewed towards weakening. A beat is unlikely to shift Fed pricing in a more hawkish direction, but an undershoot could see traders start to worry about a labour market unwind. As such, while our base case for the dollar sees little movement, we see risks as asymmetric and skewed to the downside this afternoon.
EUR
Early trading has seen EURUSD begin the day on the front foot, helped by French wage data indicating pay growth of 0.4% QoQ in Q4. That said, we are inclined to take greater steer from the private payrolls reading, which slipped -0.2% in the same period, below the -0.1% expected by markets. As we see it, the risks facing the eurozone economy continue to skew to the downside, despite inflation indicators suggesting a pickup in price pressures. The main focus for eurozone traders today, however, should be the euro system staff report on the neutral rate, which is expected to be released around midday. This should offer further context to recent comments from President Lagarde suggesting a neutral range of 1.75%-2.25%. But, given the extent to which other board members have downplayed the importance of R*, we would not be surprised if the range of estimates is sufficiently large so as to make this update as uninformative as possible.
GBP
As we wrote yesterday afternoon, we thought markets read too much into Catherine Mann’s dissenting vote to cut Bank Rate by 50bps in the BoE’s first policy decision of the year. Further consideration of the policy statement appears to have brought traders more in line with our view. After bottoming out in the mid-1.23’s GBPUSD is trading in the mid-1.24’s this morning. Indeed, the MPC’s retained use of the word gradual suggests that one-cut-per-quarter remains the base case, as did Governor Bailey’s press conference, which did little to rock the boat. We expect similar comments from BoE Chief Economist at 12:15 GMT too, with this likely to be the only UK event of note today. Given this, and our expectations for minimal reaction to US payrolls this afternoon, that leaves risks for cable tilted to the upside to end the week.
This content was originally published by our partners at Monex Canada.