The Australian dollar was one of the only comm dollars to benefit from Friday’s surge in commodity prices, as crude oil futures rocketed more than $10 higher to touch a record high of $139.12/bbl. However, the Canadian dollar – which tends to show a strong correlation with oil – went little changed over the course of the day as USD/CAD consolidated below 1.0200. Why didn’t the Loonie gain? It was all in the labor market data.
Indeed, Canadian employers only added 8,400 jobs in the month of May, the weakest gain this year. The slowdown led by the services, which lost 20,200 jobs, suggesting that domestic demand may be waning as the growth prospects for the country continue to diminish. Are these prospects dour enough to lead the Bank of Canada to cut rates next week? Maybe. According to a Bloomberg News poll of economists, the BoC is expected to cut rates by 25bps on Tuesday to 2.75 percent, the lowest target rate since October 2005, as a probable recession in the US threatens the Canadian economy. However, there is some potential that the BoC will leave rates unchanged. The most recent reading of the consumer price index showed that both headline and core inflation pressures were building faster than expected, as headline CPI jumped to an annual rate of 1.7 percent while the BoC’s core measure rose to 1.5 percent. With inflation becoming a problem again and the Canadian credit markets stabilizing, the BoC may opt to wait before reducing interest rates again, which could reignite demand for the Canadian dollar.