Technical Analysis

Canadian dollar suddenly has everything going for it

The big employment surprise today was in Canada where the economy added 108.3K jobs compared to 10K expected.

That’s dropped USD/CAD to 1.3544, which is a full cent below the pre-report levels and 200 pips on the day. It’s shaping up to be a strong day for the loonie with oil ripping on China reopening and the Russia price cap.

Zooming out to the daily chart, this looks like a clear head-and-shoulders pattern.

Over in the bond market, there’s a rethink going on around the terminal rate for the Bank of Canada. Canadian 2-year yields are up 11 bps to 4.19% compared to +5 bps in Treasuries. It’s been a sharp turnaround from 3.80% in the aftermath of the Bank of Canada decision.

Over in the OIS market, the implied odds of 50 bhasis points on December 7 are up to 70% with the remainder at 30%. That’s flipped since the BOC decision.

With China hinting strongly at reopening steps today and the US in the midst of heavy infrastructure spending, plenty of the benefits will flow into Canada via manufacturing and commodities. That’s doubly true with USD/CAD at 1.35 making Canada very competitive.

The target on the head-and-shoulders pattern is 1.30.

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