Published: Fri, 13 Mar 2009 12:58:51 +0100

Weak Canadian Employment Adds Volatility to Canadian Dollar

(CEP News) - The Canadian dollar is struggling to find any direction Friday morning following the release of a weaker-than-expected Canadian employment report.

The February Canadian employment report added volatility to currency markets Friday morning, with USD/CAD rallying 35 pips following the release of the report. Those gains were quickly reversed as the cross fell back below 1.28 CAD. After the initial volatility, the Canadian dollar remains under significant pressure trading in the mid-1.28 CAD area.

The Canadian unemployment report was weaker than expected as the economy shed 82,600 jobs and saw its unemployment rate climb 0.5 percentage points to 7.7% in February, its highest rate in nearly five years. Economists had expected a loss of 55,000 jobs, and for the unemployment to rise to 7.4% from 7.2% in January.

Steve Butler, director of FX trading at the Bank of Nova Scotia, said that although the numbers were shocking it wasn't a complete surprise. He added it is going to be difficult to determine any short-term direction in USD/CAD.

Although Canadian unemployment was downbeat, U.S. equity futures are in positive territory and point to a fourth straight positive open.

"The correlations just aren't very strong right now and I think that means the market is struggling for direction," said Butler. "Ultimately I think if we have another positive day for equities, [which] will support risk appetite and that could benefit the Canadian dollar."

Butler said if USD/CAD breaks above 1.2850 CAD it could take another run at 1.30 CAD, but if it closes the day around 1.27 CAD then it could lead to a further selloff in the pair.

Matt Perrier, currency analyst from BMO Capital Markets, said with the stronger equities and higher commodity prices, the rally in USD/CAD could be capped at 1.2860 CAD.

He noted that the recent selloff in the Canadian dollar following the employment report could be in anticipation of a weak trade balance report. Economists are expecting the Canadian international merchandise trade to show a deficit of C$1 billion, which is an increase of January's deficit of C$500 million.

Euro/USD down 0.31 cents to 1.2881

USD/CAD up 0.47 cents to 1.2825

USD/Yen up 0.42 points to 98.14

GBP/USD up 0.96 cents to 1.4035

AUD/USD up 0.36 cents to 0.6583

Euro/Yen up 0.23 points to 126.42

Euro/GBP down 0.85 pence to 0.9177

GBP/CAD up 1.88 cents to 1.7999

CAD/Yen up 0.05 points to 76.53

Euro/CAD up 0.19 cents to 1.6519

The U.S. Dollar Index is down 0.14 points to 87.52

All data taken at 7:55 a.m. EDT

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca