After a bank of Canada interest rate decision earlier in the week - which put the BOC a neutral to dovish stance - Canadian authorities put out a weak August jobs report. The economy shed jobs during the month and the unemployment rate rose.

From Bloomberg: Canada unexpectedly lost jobs for the first time in five months in August, led by goods-producing industries such as construction and natural resources. Employment fell by 5,500 after rising by 7,700 in the previous month, Statistics Canada said today in Ottawa, and the jobless rate rose to 7.3 percent from July's 7.2 percent, which was the lowest since December 2008. Bloomberg News surveys called for a job gain of 21,500 and unemployment to stay at 7.2 percent.

In response to weaker jobs figures as well as overall economic data, we could see the Canadian government deciding to ease their austerity measures that were passed in June budget.

From Canada News: Harper hinted that the government could adjust timelines for economic measures, including cost-cutting, announced in the June budget.

In managing the economy, circumstances demand that we will listen carefully to Canadians and that we be flexible when necessary, Harper said. At the same time, as we have always done, we will work prudently and responsibly, acting on the clear and strong mandate we received from Canadians.

Breaking down some of the details of the report, working goods producing industries fell by 40.1 K while services added 34.6 K. Construction meanwhile lost 24.3 K. overall, private sector employment fell by 20.6 K while government jobs rose by 22K. Also full-time employment was up 25.7 K while part-time jobs fell 31.2 K.

The report shows that the soft period of growth that Canada experienced during the second quarter has not completely gone away. Stagnant job growth could lead to more pessimistic consumers and weaker consumer spending. As a result, the Bank of Canada may have to keep rates on hold for longer. That would be a bearish development for the Canadian Dollar. With the recovery in the US slow, that will put extra pressure on the Canadian economy and on jobs.

The USD/CAD which was higher yesterday as equities fell into the red, rose again today, climbing to the 0.9950 level in the hour after the release.

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This puts the pair close to our highs for the week and showed a nice little double bottom pattern during yesterday's trading session, a move above our cluster of moving averages, and then a slingshots move off those moving averages when retested overnight. The pair seems to have regained its bullish momentum though the RSI in the one-hour timeframe is reaching overbought levels. Therefore may want to see a correction, and a little bit of consolidation, before we extend the bull run.

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In the 4-hour timeframe we do see the pair heading back to highs we've been at only briefly this week and at the start of August. At the beginning of August the pair saw a very strong move upward which has now been consolidating for the past four weeks. The moving average picture looks bullish as we have prices above the 200 moving average, as well as our medium and short term moving averages, and the shorter-term EMA's are above the medium-term EMAs.

If we continue to see weaker data from Canada then we are looking at a test of parity which is an important psychological level for this pair. A break of parity would open up further upside risk for the pair.

Overnight we had commodity currencies weaker overall, with the US dollar gaining on the back of the Aussie and New Zealand dollars, and the weak Canadian employment report has helped the greenback to solidify its gains in today's session against the Canadian dollar.

Nick Nasad
Chief Market Analyst
FXTimes