The Canadian dollar managed to hold fairly steady on Friday morning, despite a disappointing Canadian employment report and stronger-than-expected U.S. job data. The loonie had initially dropped after the release of both the Canadian and U.S. data, but then drifted back somewhat.
Slightly weaker-than-expected Canadian employment data for February was announced and showed the economy to have lost 23,500 jobs for the month, a turnaround from the gain expected. Overall, the report added to the view that the Canadian economy is in a full-fledged slowdown, and that the Bank of Canada's interest rate cut implemented this week was likely appropriate.
Further talk of an additional interest rate cut by the Bank of Canada, possibly for another 50 bps, at their next meeting on April 17, may put more pressure on the loonie going forward.
U.S. employment figures surprised many analysts with a stronger-than-expected showing. Non-farm payrolls surged by 135,000 as increases in service employment overtook another contraction in the manufacturing sector. Unemployment held steady at 4.2%,
while average hourly earnings jumped 0.5%.
Friday's report showed an economy that appears to be working at two speeds, with the manufacturing sector receding, and the service sector maintaining growth. The strength of this employment report has prompted speculation that the U.S. Federal Reserve might only cut interest rates by 25 bps at its next meeting on March 20.
This could have a negative impact on the Canadian dollar with the loonie already vulnerable to further weakness due to the uncertainty over the slowdown in the U.S. and the effect this could have on the Canadian economy.
The euro is up on Friday at a one-week high. The currency received a boost from a better-than-expected German industrial production report. Industrial output rose 0.9% for January, higher than the expected gain of 0.3%. Overall, the outlook for the euro continues to look good.
Sterling is down on Friday after the release of a weaker-than-anticipated manufacturing report. Manufacturing output dropped 0.9% for January, the biggest fall in over two years. Although the Bank of England did hold steady on rates this week, these figures may add further pressure to the central bank to start cutting rates in coming months, which could drag on the British pound.
The Canadian dollar may still see further volatility on Friday as the market absorbs the day's data. The loonie could be vulnerable to more weakness as concern over the Canadian and U.S. economies continues.
The currency update is provided by Custom House Corporate Foreign Exchange Services. More information is available by calling 1-800-242-3147.
Custom House maintains branches in cities from coast-to-coast.
