Canadian Dollar: A Recovery Cannot Be Ruled Out, A Lot Depends On Jobs

Mixed USD moves, still no NAFTA

Canada enjoyed a monthly growth rate of 0.4%, better than had been expected. This is a significant relief after a dip of 0.1% in January and slow growth in Q4 2017. The forward-looking Ivey PMI jumped to 71.5 points in April, indicating very robust growth in the economy and a considerable leap from 59.8 points in March. Markit’s Manufacturing PMI came out at 55.5 points, in line with expectations.

Bank of Canada Stephen Poloz made another public appearance but did not add any insights after his previous speeches in recent weeks. The Bank of Canada is now seen as potentially raising rates in July, but markets undoubtedly have their doubts.

Negotiations around NAFTA continued but not enough progress was made. As the campaign for Mexico’s elections is already underway, the clock is ticking, and what seemed like an almost done deal is now in retreat. A breakup of the talks for a long break is now on the cards. Efforts continue in Washington.

In the US, the Federal Reserve left the interest rates unchanged as expected. The message on inflation was mixed: while they are happy with higher inflation, Powell and company now point to a symmetric goal. This was interpreted as tolerance to higher inflation levels and therefore no rush to raise interest rates. The commentary on the economy was cautious.

The Non-Farm Payrolls disappointed with a gain of 164,000 against 103,000 expected. Wages rose by only 0.1% MoM and 2.6% YoY, also falling short. However, the US Dollar recovered quite quickly after the initial drop. The Fed is still likely to raise interest rates in June.

Bond yields remained at high levels but did not go too far. The 10-year Treasury bonds fell below the 3% mark they struggled to conquer.