DB FX Daily : CAD and Employment

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[B]DB FX Daily : CAD and Employment[/B]

FX Daily: London
CAD and Employment
Today's Key Data and Events
EUR Italian preliminary Q2 GDP, +0.4% qoq expected (08:00 GMT)
CAD Canada Employment for July, +20k expected (11:00 GMT)
CAD Canada Unemployment Rate for July , 6.1% expected (11:00 GMT)
AUD RBA Statement on Monetary Policy, (01:30 Monday GMT)

Upcoming Event Risks
Aug 13: Japan Q2 GDP
Aug 15: Norges Bank rate decision
Aug 23: BoJ rate decision
Aug 31: Jackson Hole Symposium

USD/CAD and employment
While moves in USD/CAD traditionally have a tight relationship with the employment surprise (see chart), the importance of the data is likely to be lessened given the greater focus on sentiment (be it in equity, money or credit markets). Indeed while USD/CAD has tended to display less of a correlation to equity market developments than its peripheral dollar-bloc cousins it nonetheless remains highly responsive to market sentiment. Turning our focus to this month's employment number we see some offsetting risks. While we view the Canadian economy as stronger than the consensus, we have also identified a tendency for the originally published employment increase in July to be weak and then subsequently revised higher over time (over the past seven years the originally published employment changes show an average fall of 1.7k in July). While we are sticking with our fundamental/medium term bullish CAD view for now, in terms of trading we would remain on the sidelines given the ongoing volatility in a range of markets and a greater degree of uncertainty about the outlook. [email]adam.boyton@db.com[/email].

Bullish AUD/NZD, but cautious on broader AUD outlook
The RBA is likely to be hawkish (certainly relative to the RBNZ's recent signal that they hope they have finished their tightening cycle) in next week's Statement on Monetary Policy on Monday, and also in the Governor's testimony on Friday. We therefore see the domestic support for AUD as stronger at this point than for NZD. Given the our current bearishness on NZD - due to both intensifying risk aversion and the slowing NZ housing, we now target a move in AUD/NZD to 1.1650 (previously 1.1475). We do note though that the best period of support for AUD from global growth has likely passed. Support for this can be seen in business confidence measures, which had already started to soften a little in the past couple of months (although they remain at high levels), but also in the ongoing weakening in globally-growth-sensitive base metal prices (see chart). So while AUD will likely find some support if risk appetites were to recover, we expect it to trade lower on a multi-month view.

John Horner
Strategist
(+61) 2 8258 2130
[email]john.horner@db.com[/email]