Predicting Canadian Employment Numbers
February 6, 2009
I am kicking myself for not posting this last night, but I’ve been swapped with preparing for the NY Traders Expo and writing my non-farm payrolls preview.
Yesterday, I wanted to show you this chart of the correlation between the employment component of IVEY PMI (white line) and Canadian employment (orange line) and argue that Canadian employment will be very weak, favoring a move higher in USD/CAD. In the second chart, you can see that the employment component of IVEY PMI dropped from 41.0 to 39.2 in Jan. Of course that has already happened and not all that useful for trading purposes today. Canadian employment dropped 129k in January which is the equivalent of a million jobs in the US.
source: Bloomberg
Source: Bloomberg
However, i still think its important to share the information as an intellectual exercise because the strong correlation indicates that it is tradeable next month. My edge has always been in predicting and trading ahead of economic data.
Every week, I send an event risk calendar (this week’s calendar)with data calls for BKT Subscribers and if you are one, hopefully you caught the CAD trade!
Posted in 2009 canadian dollar, BKTrader FX, Canadian Dollar
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February 8th, 2009 at 1:27 am
Correct me if i’m wrong but the cad went up from roughly from .75 to 0.82? and not down! Or am I missing something here?
Thanks
February 8th, 2009 at 8:27 pm
hi KL, something i have found to help in trading usd/cad…..is this chart $GOLD:$WTIC
February 9th, 2009 at 11:42 am
Maroun > you are right, but after the number, the CAD went from .8049 to 0.7973
February 9th, 2009 at 12:33 pm
I did a study a few weeks ago on the correlations between the commodities currencies and commodities themselves. while it doesn’t hold tightly in the short term, if your investing horizon is longer it could be useful. (note I had to invert $/JPY and $/CAD for a consistent view of the currency vs the other variables)
as you can see, AUD and CAD have a VERY high correlation with gold and oil. and in fact AUD and CAD correlate extremely well with each other (this could be useful in a hedging scenario), and tend to move opposite JPY, confirming the observed relationship.
12 months of daily data- the long view
AUD/$ CAD/$ JPY/$ Gold
CAD/$ 0.96
JPY/$ -0.74 -0.77
Gold 0.77 0.78 -0.37
Oil 0.89 0.84 -0.80 0.58
and yet, if you only take the last three months data, the correlation was much weaker- demonstrating you can only consistently play this correlation over longer time frames.
last 3 months
AUD/$ CAD/$ JPY/$ Gold
CAD/$ 0.86
JPY/$ -0.25 -0.56
Gold 0.50 0.46 0.14
Oil 0.45 0.73 -0.88 0.03
and now to the future- I believe oil will stay in its current range (OPEC cuts balanced by demand destruction), leaving CAD oil out-priced: their tar sands production break-even price is over $80/bbl.
Gold is another matter, and I have no idea where its going. if we see a return of risk appetite and a sustained equities rally on the bailouts, gold may go down or stay in a range. either of these scenarios, plus the vast reduction in trade with the US, leaves CAD pretty weak in the near term. comparing AUD and CAD, CAD unemployment is much worse than AUD, and central bank rate is much lower (1% vs 3.25%).
always looking for disconfirming evidence, to the strength side of CAD, I’d add its a double surplus country (current acct and budget balance), and $/CAD is right at purchasing price parity.
given all that, if $/CAD gets to 1.2 or lower, I’d go long…
(I had to add spaces and tabs to make the tables look right- hope it comes out ok in the post…)
February 9th, 2009 at 12:34 pm
oh well, tables still got screwed up. you’ll have to parse manually.