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A hawkish speech and higher oil prices propelled the Loonie to the third top spot last week. Let’s see if this week’s set of catalysts push it back up to top 1.

Employment numbers (May 11, 12:30 pm GMT)

Last month’s release provided the Loonie the extra “oomph” the currency needed to be the best-performing among its peers that week.

See, Canada created 32,300 jobs in March, while the unemployment rate and participation rate were unchanged at 5.8% and 65.5% respectively. The most encouraging part was the 3.1% annual wage increase, which matched February’s growth.

While the reports won’t necessarily have BOC Governor Poloz and his team jumping for the rate hike button, it’s still mostly in line with the central bank’s slightly hawkish bias.

This week analysts see the unemployment rate maintaining its 5.8% figure, while a net of 19,500 workers are expected to have found jobs in April.

If the reports printed more optimistic numbers, then we might see more traders price in Poloz’ hawkishness from last week (read the gist of his speech below).

NAFTA and oil-related concerns

Word around the hood is that NAFTA talks are heating up ahead of U.S. and Mexican elections due in a few weeks.

If the Donald and his team remain unfazed by the pressure and stick to their hard lines, then we might see the Loonie lose ground across the board. But if we see deals sooner than later, then the Canadian dollar could maintain its uptrend against its major counterparts.

As you can see below, the Loonie tends take cues from oil prices. Well, if the correlation holds true, then we might be in for a ride.

For newbies out there, you should know that the U.S. is widely expected to walk away from Iran’s nuclear deal. BFD, since the return of sanctions would mean more (economic) pain and maybe lower production for the oil-producing country.

Oh, and keep an eye on Venezuala, too! The country’s economic problems are weighing on its capacity to produce and refine oil, which could further limit global oil supply.

Last Week’s Price Review

The Loonie is the third top-performing currency of the week (as of 5:00 pm GMT), which is a lower ranking compared to last week when the Loonie came in second place. Even so, this marks the second consecutive week of net wins for the Loonie.

Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart
Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart

Anyhow, the Loonie was mainly taking directional cues from oil prices. However, there’s a glaring instance of decoupling on Tuesday since the Loonie traded broadly higher (except USD/CAD) as oil prices dropped.

There’s no apparent reason for the Loonie’s show of strength at the time. However, a catalyst did emerge later when Canada’s monthly GDP report came in better-than-expected.

The Loonie also encountered additional buying pressure and even began to recover against the Greenback after BOC Guv’nah Poloz gave an optimistic speech.

As for specifics, Poloz had these to say:

[T]he economy will require higher interest rates over time to meet our inflation goals.

“In our Monetary Policy Report (MPR) last month, we published our latest estimate of Canada’s neutral rate, saying it falls in a range between 2.50 and 3.50 per cent, assuming that all shocks affecting the economy have dissipated. At 1.25 per cent, our current policy rate is still well below our estimate of the neutral rate.”

“These forces [that restrain the economy] will not last forever. As they fade, the need for continued monetary stimulus will also diminish and interest rates will naturally move higher.”

“[W]e are becoming more confident that the economy will need less monetary stimulus over time.

Poloz did try to temper his hawkish message by pointing out the high levels of household debt in Canada, as well as the dangers of hiking too quickly. Overall, however, Poloz’s message was still rather hawkish.

Anyhow, the Loonie appeared to take its marching orders from oil prices after that. Although it’s worth pointing out that the Loonie was reluctant to track the surge in oil prices on Thursday. And that may have been due to dampened demand for the Loonie after Canada printed a record high trade deficit in March.

Also, it’s possible that the Loonie got an extra boost when the Ivey printed a better-than-expected PMI reading on Friday (71.5 vs. 60.2 expected, 59.8 previous). It’s hard to tell, though, since oil prices were also surging at the time.