Market Drivers September 9, 2016

Commodollars slide
UK Trade in line
Nikkei 0.04% Dax -0.11%
Oil $47/bbl
Gold $1339/oz.

Europe and Asia:
AUD Home Loans -4.2% vs. -1.3%
GBP UK Goods Trade -11.8B vs. -11.7B

North America:
CAD Employment 08:30

It’s been a very quiet last trading day of the week in the currency market with the dollar giving up some of yesterday gains as some profit taking kicked. In a post ECB conference environment yesterday the greenback saw a big boost from US yields which rallied above 1.60% on the benchmark 10 year bond.

The takeaway from ECB was that central bankers see limits to zero rate policy as Mr. Draghi remained stationary and as a result the market projected that message onto the US fixed income space taking US yields higher. The ironic result was that the dollar rallied on the back of a generally hawkish ECB message as traders became convinced that Fed officials will consider tightening sooner rather than later.

However one of the key obstacles to rate hike scenario is the marked deterioration in US economic activity. With both ISM reports slipping badly and with manufacturing sector now in contractionary territory, it’s difficult to see how the Fed would pull the trigger on a rate hike at this time.

Elsewhere today the biggest movers were the comm dollars which saw steady declines throughout the night as commodity prices weakened. Oil spiked yesterday on a massive drawdown in inventories, but has already come off its highs in European trade and crude continues to find strong resistance at the $50/bbl level as increase in demand is offset by new supply.

With no US data on the docket the Canadian dollar will enjoy a rare spotlight in North American session today when the Canadian labor data will be released at 1230 GMT. The market is looking for rebound from last month’s horrid -31.2K decline, but there is reasonable chance that the forecasts will miss the 16K consensus estimate. The latest decline in Ivey PMI data augurs badly for a strong rebound and the general slowdown in North American activity during the past month may affect the data as well.

In short despite the pop in crude the loonie may be in for battering today especially if the number comes in negative for the second month in a row. If the data misses as we suspect the USD/CAD pair will likely test the 1.3000 figure before the end of the day.

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