Week in FX AMERICAS: Canadian Employment data Trumps NFP

The Canadian job print headline was far better than its largest trading partner’s payroll release. Canada’s employment growth tripled consensus (+34.3k). If one digs deeper, the details were mixed, as most of the job gains were part-time as full time employment declined –12.5k. The solid report allowed the loonie to rally to a new 12-month high. In the past 10-years +50% of CAD gains are due to commodity prices and +40% is due to “big” dollar weakness. The disappointing US data is seen as increasing the likelihood of the Fed injecting new stimulus into the economy as early as next week, as it is seeks to prop up its anemic labor market. The loonie trading at a premium to the US appears to be a “rare safe haven in a risky world.”

Below are some other highlights of the week:

USD

• USD: The US manufacturing sector remained in contraction last month (ISM PMI: 49.6-lowest reading in three-years), but cost pressures jumped (54) as more manufactures reported increased cost pressures, including prices for corn, freight rates and fuel. This weak sector may push the Fed to implement more policy accommodation.
• USD: The revisions to productivity show unit labor costs grew +1.5% in Q2 vs. +1.7% estimated and down sharply from Q1 +6.4%. The downshift means wages are not pushing up inflation pressures. Is this a plus for QE3?
• USD: ADP produced a net +201k more private sector jobs in August, far better than the +145k expected.
• USD: Weekly USD claims fell -12k to +365k, below the expected +370k. The previous weeks figure was revised higher by +3k to +377k. The 4-week moving average held at +371k, which was the highest since mid-July. Digging deeper, continuing claims ticked down -6k to +3.322m with the prior week revised up +7k to +3.321m.
• USD: ISM non-manufacturing index unexpectedly rose last month, rising from +52.6 to 53.7. The internals remain fairly strong, aside from a drop in the business activity index (-1.6 to 55.6). The gains continue to imply that the economy outside of manufacturing is running a little better than in Q2. The forward looking new order s index provided some of the worst news this month, slipping -0.6 to 53.7.
• USD: The US economy added fewer jobs in August than expected (+96k). It’s a sign of a slack recovery that could spur the Fed towards QE3. However, the politically important unemployment rate actually fell to +8.1% vs. +8.3%.
• Reuters Employment Survey Points to Lower Employment Growth
• At Jackson Hole, a growing fear for Fed independence

CAD

• CAD: The separatist Parti-Quebecois won the most seats in last Tuesday’s provincial elections, but fell well-short of an outright majority with 54 out of 125 seats. A possibility of a referendum is well off the table.

• CAD: As expected, the Bank of Canada left the overnight rate unchanged at +1%, but maintained its ‘hawkish’ bias. The statement was virtually identical to what was released in July, including the final paragraph that says rate hikes “may” become appropriate if the economy picks up as they expect in 2013 and slack is gradually absorbed.
• CAD: Canadian Ivey PMI seasonally adjusted 62.5; without seasonal adjustments it was a strong 65.2 vs. 58.8.
• Loonie Advances on Employment and ECB OMT
• BoC on hold, maintains ‘hawkish’ bias

EUROPE Week in FX

ASIA Week in FX