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As reported last Wednesday in the ADP, the number of jobs in the private sector in the US in December increased by 807,000 (against the forecast of +400,000 and the previous value of +505,000). "The labor market continued to recover in the past month, despite all the difficulties", - commented in the ADP.
These are very strong indicators, testifying to the continued improvement in the state of the labor market and the American economy. They could increase the propensity of Fed leaders to raise interest rates earlier. According to the minutes of the Fed's December meeting released on Wednesday, central bank officials may decide to raise rates as early as March.
Now market participants will wait for the publication on Friday of the official report of the US Department of Labor on the number of jobs outside of agriculture for December. Strong ADP figures give hope for an equally strong report from the US Department of Labor: economists expect an increase in the number of jobs by 400,000 (against +210,000 in November and +531,000 in October) and a decrease in the unemployment rate to 4.1% (from 4.2 % in November and 4.6% in October).
The dollar may receive additional support, reacting to the publication of strong macroeconomic statistics, which may testify in favor of the decision on a more rapid tightening of monetary policy by the Fed. The upward impulse of the dollar intensified in December after the speech of the head of the department Jerome Powell in the Congress. Powell acknowledged that inflation in the US should not be considered a temporary phenomenon now, and to tame its further growth, it is highly likely that more active action by the Fed will be required. In this regard, Powell considers it necessary to accelerate the phasing out of stimulus. "The economy is in very good shape, inflationary pressures are high, therefore, in my opinion, it is advisable to consider postponing (plans) for curtailing the purchase of assets, which we actually announced at the November meeting, a few months earlier", Powell said.
If the Labor Department report is also as strong as the ADP report, it will further strengthen the market participants' opinion that a more aggressive cycle of interest rate hikes in the US should be expected, and this is a strong upward factor for the dollar.
Meanwhile, today, along with the publication of the report of the US Department of Labor (at 13:30 GMT), data on the labor market will be published by Statistics Canada. Unemployment has risen in Canada in recent months, including amid massive business closings due to coronavirus and layoffs. Unemployment rose from the usual 5.6% - 5.7% to 7.8% in March and already up to 13.7% in May 2020. If unemployment continues to rise, the Canadian dollar will decline. If the data is better than the previous value, the Canadian dollar will strengthen. A decrease in the unemployment rate is a positive factor for CAD, an increase in unemployment is a negative factor. In August, unemployment was at 7.1%, and in November 6.0% (versus 7.5% in July, 7.8% in June, 8.2% in May, 8.1% in April). According to the forecast, it is expected that unemployment in Canada in December remained at the same level of 6.0%, and the number of employed increased by +27.5 thousand. This is moderately positive data for CAD, whose quotes may grow supported by renewed growth in oil prices. Canada is the largest exporter of oil, and the share of oil and oil products in the country's exports is approximately 22%. Despite some uncertainty in the oil market due to the coronavirus, many leading economists predict a further increase in energy prices (coal, gas, oil), including due to expectations of a cold winter and rush demand in the gas market.
Thus, on Friday at 13:30 (GMT) a sharp increase in volatility is expected in the financial markets and, above all, in the USD / CAD pair. If the official data of the US Department of Labor turns out to be disappointing, then we should expect a weakening of the US dollar and a decline in USD / CAD.
