The highlight for CAD this week is the release of the September employment report.
The market expects a 20k rise vs. the 11k drop in August. The market also expects the unemployment rate to hold steady at 7.0%. We think the corrective forces that have dripped the USD support increased position squaring in CAD. At the same time we think the market response to the report is asymmetric.
In other words, we think CAD is likely to strengthen more on a good report than it sells off on a bad report. Indeed, the bar for a “good” surprise is quite low, increasing the scope a strong release. At 20k, market expectations are above the averages from 2013 to 2014. For instance, employment gains have only averaged 14k since mid-2013.
We think a strong number could help push USD/CAD lower by another cent. Key support for the pair rests near 1.105 but we continue to favor CAD on the cross.
Specifically, we initiated a short NZD/CAD trade that seeks to exploit the divergence in fundamentals between the Canada and New Zealand and between the US and China more broadly.
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Published On Fri, Oct 10 2014, 04:46 GMT