Canada’s Unemployment Hits 6.8%, CAD Sinks to 4-Year Low Amid Rate Cut Expectations

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4030-1.4240

Euro                 1.4790-1.5020

Sterling            1.7930-1.8140

WTI Oil (opening level) $68.04

On Friday, Canada’s unemployment rate jumped higher to 6.8% in November, the highest since 2016, from 6.6% previously. Participation rate jumped higher to 65.1% from 64.8% and headline payrolls was above expectations at 50.5k vs. 25k expected and 14.5k prior.

Market is now pricing 80% odds of a 50bps cut this week.

Also on Friday, The US jobs report came out with the unemployment rate ticking back up to 4.2% versus a steady 4.1% reading expected. This has edged out the relatively positive news that the Nonfarm Payrolls Change rose +227k for the month vs. +220k expected, with a +56k revision to the two prior months' data.

Please note, market continues to expect the Fed to cut rates next week.

Those 2 reports moved the CAD to the worse level in 4 years to 1.4153 at the close on Friday.

With the Bank of Canada interest rate announcement on Wednesday, the market is now expecting a cut to help stimulate the economy. Further CAD weakness is likely to follow.

Key Points

·    Equities: US tech rallies, Europe steady, Asia hit by South Korea’s political unrest

·    Volatility: VIX steady near lows; futures slightly higher; hedging activity rises

·    Currencies: USD and JPY firm after mixed US jobs report. AUD weak ahead of RBA

·    Commodities: Gold and crude trade firmer with Middle East and central banks in focus

·    Fixed Income: Bond markets anticipate further rate cuts