Friday’s economic attention is on Canada with the June jobs report set to be released. This report usually coincides with the non-farm payrolls, but this time it stands alone. Analysts expect no change in the number of jobs after a gain of +8.8K in May. The unemployment rate is predicted to rise to 7.1% from 7.0%, which would be the highest level since 2021, and, excluding the pandemic, the highest since May 2016. This increase follows a drop from 4.8% in July 2022. On Thursday, the Canadian dollar strengthened but lagged behind other commodity currencies, partly due to a 2% drop in oil prices. Trade worries persist due to new US tariffs and issues with Brazil. The USD/CAD currency pair has been stable for six weeks. Analysts expect it to decline, potentially reaching 1.34 by the end of the year. For those tracking market developments, this signals that the Canadian economy shows clear signs of weakness. The expected rise in the unemployment rate to 7.1% indicates stress in the labor market. While we’re not seeing drastic declines, the trend is moving away from the tight labor conditions of mid-2022. Rising job data suggests that employers are starting to pull back. Thomson’s prediction of no change in the main figure reflects this unease. Even though May saw a slight increase in employment, it doesn’t ease broader concerns. The Bank of Canada is paying close attention to these labor signals and is likely focusing even more on wage data than overall job growth. The Canadian dollar gained some ground mid-week, but its strength varied. It lagged behind other resource-linked currencies due to external factors rather than domestic issues. The drop in oil prices, by about 2%, caused a dip in investor confidence since Canada heavily relies on energy exports. Trade uncertainties add to the worry. While many look at US trade activity, tensions with South American partners remain. Sullivan’s analysis of the USD/CAD pair raises some concerns. The six-week holding pattern before a significant move suggests market positions are building. A shift toward the 1.34 level will require Canadian weakness and US stability. The Federal Reserve’s tone and expectations around inflation and rates will also play a crucial role. For those making short- or medium-term investments, we’ve examined implied volatility levels, which are surprisingly low given the circumstances. This suggests that option prices might be underpriced—an unusual situation right before labor reports from both countries. With no US jobs report this time, Canada’s data holds more potential for market impact. Jackson’s team rightly points out the significance of trade friction. If tariffs remain or worsen, it limits upside for the Canadian dollar. This makes holding long positions challenging unless hedging against other trade metrics. It’s also worth monitoring the two-year bond spread compared to Treasuries, which continues to favor US yields. If the data disappoint—especially concerning full-time employment—price movements should become more intense. Our main focus is on the details of Friday’s report. While goods-producing sectors might hold steady, if weakness spreads to services, pressure on the Canadian central bank to change course could increase. Market reactions are often sharpest when expectations are closely grouped. Many forecasters expect similar outcomes, so any unexpected results could lead to stronger market moves. Given this, we’re currently seeking short-dated derivatives that offer better reward-to-risk ratios before the next rate meeting. Seasonal factors are also present, but they’re less reliable. Participation rates often drop during mid-summer, which can make daily price movements more volatile. This is especially true because options positioning is light. If you’re managing exposure in the coming weeks, skew has provided better value than delta lately, especially for downside protection. Morgan’s forward guidance analysis should be approached carefully. We haven’t seen enough labor weakness to justify a dramatic shift towards a prolonged pause or rate cut yet. However, if Friday’s report shows a significant job loss, that could change quickly. Thus, we are closely monitoring front-end interest rate futures for any sudden adjustments rather than focusing solely on currency exchange rates. There’s little benefit in waiting for a clear trend. Market reactions are increasingly binary. As spreads widen and oil prices remain low, correlations with North American equity flows are returning. This affects risk appetite towards the Canadian dollar and diminishes its safe-haven status even among commodities. The short-term outlook remains cautious. Directional confidence should be aligned with key domestic data, and Friday may set the stage for how the summer progresses.

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