US inflation and Canadian jobs both mixed

The main economic releases of the day , and from a North American point of view at least of the week, have delivered mixed results with conflicting messages seen in both the US inflation figures and the Canadian jobs report. As is such the initial market reaction is a little unclear with the USD remaining well bid after earlier rising on potential safe haven flows due to the situation in Turkey while the Canadian dollar has fallen back after attempting to rally.

First off, let’s look at US inflation. IN M/M terms the CPI readings for both the headline and core in July were inline with expectations at +0.2%, but the Y/Y readings served up some conflicting information. The headline rose by only 2.9% - as expected - but the core reading rose slightly to 2.4% compared to a forecast of 2.3%. This could be seen as positive for the US dollar, but a drop in real average earnings Y/Y to -0.2% from 0.0% previously keeps the overall picture more balanced. The rise in the CPI core has opened up a notable divergence with the Fed’s preferred measure of the PCE core, but it is worth pointing out that the last time a big divergence began tp open up the PCE core eventually caught up in part after a significant lag.  

 The increase in the CPI core Y/Y could well be an early sign that the PCE core is set to push higher. This happened previous around 2015-16 when the CPI began to rise first. Source: XTB Macrobond

Looking north to Canada and the latest employment change of 54.1k was far better than the 17k expected and also a fair sized beat on the prior print of 31.8k. The Canadian dollar initially made a quick jump higher, but here it was a case of the devil being in the detail, with the composition of the jobs actually revealing a far less positive message. The 54.1k jobs added in the month of July comprised of 82.1k part time roles and full time employment actually fell by 28k. In Y/Y terms the composition appears to be more healthy but the market appears to be focusing more on the M/M data with the USDCAD regaining the 50 pips lost on the announcement in a matter of minutes and now trading slightly higher than before the release.   

Canadian jobs growth remains quite strong from a Y/Y perspective but the past month saw a drop in full-time roles and this caused the initial rally in CAD to swiftly reverse. Source: XTB Macrobond

Another reason for the possible lack of follow through on the CAD rally was the wage data which disappointed with both total average hourly earnings and in particular those in the manufacturing and utilities sectors falling sharply. Source: XTB Macrobond

The USDCAD remains near an interesting level with the market appearing to be in a consolidation phase with 1.2965 providing a floor and 1.3120 a ceiling. Until there is a break of this range then the prospects for large moves are limited. There are longer wicks showing above a couple of recent candles and certain trend identification tools such as Ichimoku clouds and the 8 and 21 EMAs are both pointing lower but the market needs to break convincingly below 1.2965 before anything major can happen to the downside.