News & Analysis


An underwhelming jobs report from Canada coupled with a robust report from the US led to a spike in USDCAD on Friday as the arrival of Omicron in Canada and the subsequent provincial lockdowns in Ontario and Quebec hit the Canadian labour market. Most of the loonie’s losses have been recuperated, however, arguably as the jobs report failed to shift expectations for Bank of Canada policy tightening: Employment is likely to pick up quickly, especially in food and accommodation services as indoor dining opens back up in Ontario and Quebec, however, hours worked may lag by a few months. We don’t think Friday’s labour market data will derail the Bank of Canada from hiking 50bps in March’s meeting. This week, commentary from BoC Governor Tiff Macklem on Wednesday at 17:00 GMT will be the standout event from the Canadian side of the border, however, commentary from the BoC has remained in line with their latest policy decision and Wednesday’s speech is unlikely to show a deviation. Thursday’s release of US CPI is likely to be more instrumental for USDCAD, which is expected to show inflation continuing to rise from 7% YoY to 7.3% in January.


The greenback benefited from an unexpectedly strong January jobs report on Friday which underpinned the hawkish repricing of the Fed. Going into the release, both the White House and Fed officials had commented on the event and warned not to overinterpret the report because of seasonal impacts and Omicron. Markets had a hard time ignoring the data however when it came in at nearly four times as many jobs as the broader consensus had foreseen. The US added 467k nonfarm payrolls, while details of the report showed that underlying factors contributing to slack in some parts of the labour market (such as a lower participation rate) have now faded. This left markets with concerns that the economy is running hot and could run even hotter if Omicron concerns dissipate, which helped policy expectations firm and in turn strengthened the dollar. Today’s calendar is fairly light for the US ahead of what could be a new high in US CPI on Thursday.


The euro is coming off of Friday’s highs across the G10 this morning following increased geopolitical tensions surrounding Russia’s military build-up on the Ukrainian border, but the single currency continues to trade at elevated levels as markets digest last week’s hawkish pivot at the European Central Bank meeting and government officials remain committed to negotiations on Ukraine. ECB policymaker Klaas Knot, who is seen as the most hawkish member, expects an interest rate hike as early as Q4 2022 and said a second hike can take place in spring 2023. His comments failed to lift the euro, arguably as market participants would expect the most hawkish person at the ECB to shift their expectations for a rate hike in the same way as how the central bank shifted its communication last week, meaning that his projections were more or less expected. Market expectations of higher rates within a one-year timeframe increased on Friday too, to signal a return to positive rates for the first time since 2013. This led to German 2-year Bund yields rising to levels last seen in 2015, while the 10-year is trading in positive territory. It should be noted that market pricing has been fairly more aggressive than central bank communication over the last year given the hot inflationary backdrop, but the change of tone at last week’s ECB meeting and the following developments in markets does indicate policy is set to tighten more quickly than earlier anticipated. Today’s comments from ECB President Lagarde will be watched at 15:45 GMT for more insights, while France’s Macron meets Putin in Moscow today and the EU meets to discuss contingency steps should European consumer gas prices rise further.


Like the whole G10 board, the pound plummeted on Friday following a surprisingly strong US payrolls print to close the week out just 0.95% higher against the dollar. This morning, sterling is trading in relatively tight ranges against the dollar, while a retracement in GBPEUR is taking place after the cross fell 1.66% after Thursday’s ECB policy meeting. Over the weekend, Prime Minister Boris Johnson replaced his chief of staff and director of communications after a series of walkouts in Downing Street, while the Sunday Times reported that the prime minister is internally preparing for a vote of no confidence to be conducted as early as this week as 35-40 Tory MPs have signed letters calling for his removal, falling just short of the 54 required to force the formal vote. Focus will likely remain on political developments in Westminster today amid a sparse data calendar in the UK.



This information has been prepared by Monex Canada Inc., an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Inc., or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.