Will Canadian Labor Market Data Force A USD/CAD Breakout?

Source: Daily FX

The only significant event risk on Friday will be from the release of the Canadian net employment change. This release is essentially "the other NFP" report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Lately, the net employment change has been lackluster and signs are starting to emerge that domestic demand is slowing. Indeed, during the month of February, wholesale sales plunged 1.8 percent while retail sales fell 0.7 percent. Meanwhile, the most recent Ivey PMI report reflected slowing in business activity, as the index eased less-than-expected to 57.6 from 59.0. A breakdown of the index showed prices soaring, and with the Bank of Canada's core CPI measure still well below their 2 percent target at 1.3 percent, the data suggests that businesses are not passing on these rising costs to customers, which would hurt profit margins. On the other hand, the employment component rose to a five-month high, indicating some potential for strong labor market figures from Statistics Canada. Such a result would spark substantial volatility for the Canadian dollar in the short-term, but nevertheless, with the US economy deteriorating rapidly, the financial markets remaining unstable, and inflation remaining below target, the Bank of Canada is likely to continue cutting rates when they meet again in June.