Strong GDP and Jobs Data in Canada Keep The Loonie Strong

by Ismael Frederick | December 16, 2016 8:19 am

Canada’s economy grew over Q3 after having a sharp decline in the previous quarter. Increased energy export and growing household consumption boosted the GDP figure. The Q3 figure showed an increase of 3.5% to read an impressive USD 1.33 trillion. The 3.5% growth figure was more than the projected 3.4% figure, according to the Royal Bank of Canada. As a result of good performance in the commodity sector,the industrial output results grew over the month of September.

Economic expansion seen in USA and Canada

The USA economy showed mild expansion from the beginning of October up to the middle of November. The growth also came without the usual high inflation burden. The retail sales, real estate markets and consumer service firms all marked some increase in activity, according to a November Federal Reserve Survey, ‘The Beige Book’. The central banks’ economic report usually shows the information collected by the various regional Fed banks and the latest data gives a positive outlook on the economy. Moderate economic growth can be expected in the coming months.      

Unemployment in USA and Canada decreased in November

Three weeks ago, the USA and Canada both announced very strong jobs reports.3 The USA had its unemployment levels fall down to their lowest levels reported in over 9 years. The report comes with footnotes of new opportunities for the labor market to grow. The unemployment dropped to 4.6%, a figure that shows that the jobs market is outperforming the projections tabled in the previous half of the year. The non-farm payrolls posted a 178,000 gain in new jobs while the market expectations had been a 175,000 gain. The job conditions in the economy are a strong indicator of the Federal Open Market Committee meeting decisions that are now due on December 13th and 14th.

Canada on the other hand added 10,700 jobs in November, bringing down the unemployment rate to 6.8%. There had been a forecast of job losses  in the economy two months ago. Most of the new jobs in Canada came from the services sector and was closely followed by the finance, real estate, leasing and agricultural sector. Only the construction and manufacturing sector showed declines. The youth unemployment rate in Canada remained unchanged at 12.9%, raising questions about the quality of the new jobs. Finance pundits immediately went on an outrage claiming that most of the jobs were part time or apprentice positions that may give a skewed position on how the jobs market as a whole is fairing.   3

USDCAD H1 chart. Source MataTrader with mt4 trend indicator[1].

Strong jobs reports and a thriving oil market may keep Canadian rates unchanged

The Bank of Canada is also scheduled to make an announcement on the policy rate later this week. With the recent optimistic outlook on the economy and a thriving energy sector, the Bank of Canada is expected to keep the policy rates steady. The happeneings in the US economy have traditionaly affected Canada’s own policy rate decision and at the moment, the Green buck is likely to make a correction . A vulnerable US dollar is usually an extra reason for Canada to keep their policy rates unchanged in order to take advantage of revenues from stable oil prices. The Canadian dollar is expected to hold steady this week against the US dollar.

Compared to the US dollar, the Canadian dollar made some moderate gains last week after the good jobs reports and the OPEC production deals favoring Canada. The impact can also be seen as the crude oil prices surged immediately after the agreement was publicized late Friday. The deal generally aims to curb overproduction so that the global market does not remain flooded. The deal however structures details on production levels, inventories and sorts ways to keep the wells running at a reasonable productivity level. From a political angle, the OPEC deal also means that Iraq and Russia have committed to freezing output at their current levels.

The USDCAD has retreated to new lows below 1.3300 over the start of the week as rate announcements draw closer.

Endnotes:
  1. mt4 trend indicator: http://mt4trendindicator.com

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