Dollars Dominate as US NFPs and CAD Employment Beat

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Midday Market Drivers for March 08, 2013
Dollar dominates after NFP beats at 236K USD/JPY spikes 96.50
CAD employment also beats 50.1K vs. 8K eyed
Dow .29% Europe 1.17% Nikkei 2.64%
Oil $91.58/bbl
Gold $1574/oz.

Europe and Asia:
JPY GDP 0.0% vs. -0.1%
JPY Trade Balance 0.36T vs. 0.11T
CHF CPI 0.3% vs, -0.3%
EUR German Industrial Production n/a

North America:
USD Unemployment Rate 7.7%
USD Change in Non-farm Payrolls 236K
USD Average Hourly Earnings All Employees 0.2%
CAD Housing Starts 181K
CAD Unemployment Rate 7.0%
CAD Net Change in Employment 50.7K

The dollar pared some of its gains but remained near the session highs in midday North American trade in the wake of much better than expected US employment which saw Non-Farm payrolls increase to 246K versus 170K expected. The data beat on all fronts with unemployment rate declining to 7.7% from 7.9% eyed and manufacturing employment increasing to 14K from 9K forecast. Average hourly earnings rose by 0.2%, in line with expectations.

The market was primed for a solid report, but today’s data beat even most of the bullish expectations indicating that the US economy continues to outperform the rest of the G-3 by a wide margin. The only down note to the days calendar was the higher than expected wholesale inventory reading which rose to 1.2% from 0.4% anticipated which suggested that final demand may be a tad weaker than the labor numbers portray.

Still today NFP reports was unequivocally positive news for the US economy and the greenback which rallied against almost every other major. The EUR/USD dropped through the 1.3000 level in the aftermath of the release but once again held the key 1.2950 support. Although the euro has long ago stopped trading on risk flows, the fact that it has not collapsed completely today may be due speculation that strong US growth could revive export demand in the EZ and thus act a locomotive for global growth.

Although the EUR/USD remains weak, it continues to consolidate around the 1.3000 level. However in order for the unit to mount any credible counter trend rally the market will need to see some improvement in EZ economic data relatively soon. Today’s miss in German Industrial Production makes that task all the more challenging.

The one currency that did not fall against the greenback was the loonie which gained ground across the board after much better than expected Canadian employment data. Canada saw a massive explosion in jobs generating 50.7K versus 8K expected. Canada gained 33.6K full time jobs and created another 17.2k part time jobs. The rise was the largest monthly gain since December of last year and puts aside most concerns regarding the decoupling of growth on the North American continent.

The Canadian dollar has been under strong selling pressure for the past month, but despite the broad market bearishness USD/CAD could not clear the 1.0350 level and given today’s upside surprise that level should be a near term top for the time being. Although the BOC remains relatively dovish, today’s stellar employment serves as the first positive major economic surprise in weeks and if it signals a pick up in activity than the loonie should strengthen over the next several weeks with USDCAD trading down to 1.0150.

Boris Schlossberg
Managing Director

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