The US labor market slowed down in August, injured by the leisure and hospitality sector amid another major coronavirus outbreak. According to the NFP report, the economy created only 235k jobs, well below the consensus of 733k new hires and the lowest number since January, when Covid-19 vaccinations were just beginning.
The hiring downturn will likely lead to Fed to being more patient before lowering asset purchases and almost certainly prevent a September taper announcement. An accommodative-for-longer stance by the central bank could potentially slow the recovery in US Treasury yields and weigh on the broad US dollar index. Theoretically, this could support the Canadian dollar (CAD) and push the USD/CAD exchange rate lower in the coming days, accelerating the 400+ pips correction that began two weeks ago.
While the stars seem to be aligned for more US Dollar devaluation, it is crucial to closely monitor market sentiment, as concerns about air pockets in the US and Chinese economy can trigger a flight-to-safety reaction at any time. A risk-off episode can spark higher volatility, hit growth-linked commodities (e.g., oil) and weigh on high-beta currencies such as the Canadian dollar.
Another potential volatility event for CAD to watch in the week ahead is Bank of Canada’s rate decision. Although no fireworks are expected, the establishment could adopt a more cautious tone on the economic recovery in light of the second quarter unexpected GDP contraction (Q2 GDP shrank 1.1% annualized vs expectations of a 2.5% increase) .
With risks increasing for the current quarter, we could see some dovish tweaks in the policy statement and perhaps an acknowledgement that the output gap will take longer to close. The bank, however, will abstain from changing the outlook significantly to stay above the fray ahead of the September 20 snap elections.
Warning:
Trading on CFDs involves a high level of risk, including full loss of your trading funds. Before proceeding to trade, you must understand all risks involved and acknowledge your trading limits, bearing in mind the level of awareness in the financial markets, trading experience, economic capabilities and other aspects.
Disclaimer:
Market Trends, Charts, Trading Ideas or other information provided by BKFX (Pty) Ltd and/or third parties are not intended as an investment advice and/or recommendation. The information provided is not presented as suitable or based on your specific need. You are responsible for your own investment decisions and you should not trade with money you cannot afford to lose. Any views or opinions presented in this Article are solely those of the author and do not necessarily represent those of the Company, unless otherwise specifically stated. The Company may provide the general commentary which is not intended as an investment advice and must not be construed as such. Seek advice from a separate financial advisor if an investment advice is needed. The Company assumes no liability for errors, inaccuracies or omissions, inaccuracies or incompleteness of information, texts, graphics, links or other items contained within this article/material.