Briefing highlights
- Political developments weigh on greenback
- Unemployment eases to 6.3%
- U.S. gains more jobs than expected
- Canadian trade deficit swells
- Markets at a glance
- Toyota, Mazda to build U.S. plant
Hobbled
America's currency is as hobbled as its leadership, a global game-changer that may also see the loonie "winning just by default."
The U.S. dollar gained a lot of ground today after the latest jobs report, but generally has been held down. The loonie, in turn, took a tumble.
"We think the USD slide is starting to look somewhat stretched from a short-term point of view but we think the broader turn lower over the past few months supports the notion that the longer-term secular trend in the USD risks losing more ground in the medium to longer run," Shaun Osborne, Bank of Nova Scotia's chief foreign exchange strategist, said before the latest gain, referring to the currency by its symbol.
The general weakness in the U.S. dollar is at least partly driven by Washington politics, notably President Donald Trump's inability to push through economic and fiscal plans. Because from an economic standpoint, there's little standing in the way of the greenback.
"It is evident that the most recent slide in the USD has neither reflected relatively weaker economic data (more positive U.S. data surprises have run ahead of those from the euro zone and Japan in the past few weeks) nor any major deterioration in short-, medium- or longer-run interest rate differentials, even with U.S. yields stuck in a narrow range as markets remain unconvinced that the [Federal Reserve] will be a able to deliver on a third rate tightening this year," Mr. Osborne said in the Scotiabank's latest outlook.
"If anything, yield spreads are at very supportive nominal levels for the USD against most major currencies," he added.
"Absent any evident fundamental driver of USD weakness, we continue to feel that some of the dollar's decline can be ascribed to the unsettled domestic political backdrop in the U.S. and President Trump's inability to advance his policy agenda. This is persuading investors to look elsewhere for less risk and higher returns."
David Rosenberg, chief economist at Gluskin Sheff + Associates, compared to the Trump era to that of Jimmy Carter, who "showed no ability to govern effectively at the national level over his four years in power," which meant nothing was accomplished.
"The Carter era was not exactly bullish for the U.S. dollar, and the early days here of the Trump era are painting a comparable picture for the greenback, which already is down 10 per cent on a trade-weighted basis since Inauguration Day," Mr. Rosenberg said in a recent report.
The greenback has been hurt for some time as President Trump's troubles show little sign of easing, though it gained today on the U.S. jobs report as the loonie slid on the Canadian report.
Just yesterday, for example, reports said special counsel Robert Mueller reportedly convened a grand jury probe into the accusations of Russian meddling in the election, which weighed on the currency.
What this means, Mr. Rosenberg said, is that "even if things don't go as planned for the Canadian call, the loonie may end up winning just by default."
To be sure, there's far more than a weak U.S. dollar driving the Canadian currency, including a strong economy and a shift by the Bank of Canada, which raised its benchmark overnight rate by one-quarter of a percentage point, to 0.75 per cent, in mid-July.
Observers believe it will raise rates again, all of which helps boost the loonie.
"The CAD has been on a tear since the USD peaked around 1.38 in May," said Scotiabank's Mr. Osborne, referring to the loonie by its symbol and the point at which it tumbled to as low as about 72.5 cents (U.S.).
"The run of CAD-positive news has propelled the currency sharply - and broadly - higher," he added.
"Oil prices have firmed, Canadian economic data have been supportive, with economic reports generally running strongly ahead of expectations, and yields have risen to reflect the BoC's recently unveiled hawkishness."
Scotiabank expects the loonie to hold its recent range and to trade between 77 cents and 80 cents through to the end of 2018.
"We remain generally constructive on the outlook for the CAD but we feel that the CAD's rally may reverse modestly in the near term with a lot of good news factored into the exchange rate at this point," Mr. Osborne said.
Read more
- 80.5¢ may be about as good as it gets for born-again loonie
- Ian McGugan: Why you can thank Trump for the 80-cent loonie
- David Parkinson: Canada’s economy posts ‘blow out’ growth
- David Parkinson: Canada leads G7 in economic growth: IMF
Jobless rate dips, trade gap swells
Canada's jobless rate is now down to 6.3 per cent, with 11,000 new positions created last month.
The drop of 0.2 of a percentage point in unemployment came as the number of people hunting for a job decreases, Statistics Canada said today.
Over the past year, employment is now up by almost 400,000, or 2.1 per cent. And, on a strong note, that's largely on full-time work.
In July, said the federal agency, full-time positions rose by 35,100, while part-time employment fell 24,300.
"After a run of huge gains, nobody is going to complain about the more moderate hiring pace that Canada saw in July, and the attention instead will focus on yet another drop in the jobless rate," said CIBC World Markets chief economist Avery Shenfeld.
Canada's trade report, however, was exceptionally weak as its deficit swelled to $3.6-billion in June from $1.4-billion a year earlier.
This came as exports slipped 4.3 per cent, while imports inched up 0.3 per cent.
"Taking some of the shine off the jobs report was a large widening in the trade deficit," Mr. Shenfeld said.
"The wider trade deficit might be seen as a slight negative for the [Canadian dollar], but the tight jobless rate will keep chatter alive about an October rate hike," he added.
Read more
- Canada’s economy adds 10,900 jobs; jobless rate falls to 6.3%
- U.S. payrolls increase more than expected, wages rise
Markets at a glance
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