When this happens, USD/CAD could reverse its rise as positive data drives speculation about tightening from BoC. As such, we expect growth in Canada to strengthen in Q4 and Q1. The recent decline in the Canadian dollar will provide even more support to Canada’s economy and this is coming at a time when U.S. Manufacturing conditions have improved, the trade deficit narrowed, consumer spending rebounded and job growth accelerated. With that in mind, it may not be long before we hear some optimism from the BoC. A few months ago, the Canadians dropped their call to raise rates and despite the improvements in the Canadian economy over the past month and half, we do not expect the central bank to alter its outlook. The BoC is widely expected to leave interest rates unchanged but as usual, the bias of the central bank is key. USD/CAD climbed to a fresh 3 year high ahead of the Bank of Canada’s monetary policy announcement. While there are no clear benchmarks for the Beige Book, the description of the labor market from the 12 Fed districts could also affect the market’s expectations for NFPs. A strong non-manufacturing ISM report could easily revive the dollar’s rally as traders readjust positions in favor of earlier tapering.
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At this stage, we believe that the odds favor a stronger release because confidence has improved since the last report. However if it declines, then there’s a good chance payrolls will rise by less than 175k.
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#IS THE EURO STRONGER THAN THE DOLLAR PLUS#
If it extends higher in November, then we will be looking for another month of 200k plus payroll growth. Last month, the employment component of non-manufacturing ISM increased, accurately forecasting the sharp rise in payrolls. Our forecast for payrolls hinges on tomorrow’s releases. However to everyone’s surprise job growth in October accelerated and now economists are looking for a pullback this month. Originally, payrolls were expected to rebound strongly in November after falling sharply in October. These are three of the most important leading indicators for Friday’s non-farm payrolls report. labor market tomorrow with the release of ADP, non-manufacturing ISM and the Federal Reserve’s Beige Book report. Meanwhile the market’s focus will begin to shift to the U.S. At the same time, the Yuan is also becoming an increasingly popular contract currency, a trend that is not expected to change. While actual trading in the currency remains miniscule compared to the majors, the use of the currency for trade is increasing rapidly especially as China searches for ways to remove exchange risk and reduce the use of dollars. We are going to see a lot more of these reports from the Bank of International Settlements and other agencies in the coming years. At the same, the Yuan’s share is still dwarfed by the dollar, which accounts for 81.08% of all transactions. In fact, China could hold the number two slot for most actively used currency permanently because trade with China will only increase as the economy becomes more consumer driven.
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Increased trade with China has led to higher demand for the Yuan and this trend is not expected to change. According to SWIFT, one of the leading global transactions organizations, the Yuan now carries a market share of 8.66% compared to 1.89% in January 2012. This trend has been slow in the making but represents what could quickly become a new reality for currencies. One of the most interesting stories in the FX market was the report that the Chinese Yuan overtook the euro in trade finance to become the second most heavily used currency behind the U.S. economic data scheduled for release today, profit taking drove the dollar lower. Yen Crosses Retreat, but GBP/JPY Still Headed Higher Chinese Yuan vs. AUD: Supported by Steady RBA Statement, Q3 GDP Next