USD/CAD makes the round trip
The first reaction to yet-another sizzling Canadian jobs report was to buy the loonie. The second reaction has been disbelief.
Canada added 55.9K in January, blowing away the consensus of +1.2K. It's not a one-off fluke either. The past six months have seen the best Canadian jobs creation of any six month period since 2002.
The problem is that it doesn't square with any of the other data. Canadian housing is down, the consumer is flat (at best) compared to a year ago. Businesses are sour, there's little investment and inflation is low.
Employment is a lagging indicator and the market is saying that +55.9K isn't indicative of where the economy is today. It's also saying that there is no way the past six months have been the best for the Canadian economy in 17 years; the economy is barely growing.
The thinking is that some of these gains will be reversed in the months ahead as economic weakness spreads. Even more succinctly, the market is saying: this won't last. There are tougher times ahead for the economy and the loonie.
The day isn't over yet and the drop in crude is certainly part of the story, but the inability for the loonie to rally on good news is a dead giveaway that buy-the-dips in USD/CAD is the mode from here.
