CAD: Driven higher - BBH

Analysts at BBH explain that the Canadian dollar shrugged off the evidence that the economy slowed markedly and instead was driven higher by the stronger than expected jobs report.  

Key Quotes

“The initial estimate of Q3 GDP confirmed the slowdown that had been widely expected.  Economic growth was 1.7% at an annualized pace, which was less than half of the Q2 4.3% pace (initially reported as 4.5%).  The employment data was impressive.   Canada created 79.5k jobs.  It is the most in five years.   Nearly 30k of those jobs were full-time.  The year's average before the report was 34k full-time jobs and the three-month average through November stands at nearly 77k.  The unemployment rate tumbled to 5.9% from 6.3% while the participation rate was steady at 65.7%.”  

“The US dollar had been flirting with the October high seen around CAD1.2920.  After the strong jobs report, it appears to be setting up a test on the lower end of the recent range seen in the CAD1.2660-CAD1.2670 area.  Below there, the CAD1.2590 is the 38.2% retracement of the rally since early September.  The technical indicators are not generating a strong signal.  The US dollar tracks on the directional basis the movement of its two-year interest rate spread.  That spread went from 25 bp in Canada's favor in early September to 35 bp in the US favor.  The US premium narrowed for the first time in six weeks ahead of the weekend.”