Markets will be slightly more nervous around the Friday release of the Non-Farm Payrolls number (expected at 200,000) after ADP employment growth came in at 154,000 well below the market consensus of 195,000. This caused a temporary blip in the US dollar, but the ISM Service PMI and Factory Orders both came in higher than expectations and helped see the Bloomberg Dollar Index gain another 0.5%. It is still early days, but the Atlanta Fed’s GDPNow estimate is predicting a 1.7% gain in US 2Q GDP, a dramatic improvement from 1Q’s 0.5% increase. Such a number would certainly support the tentative gains we are seeing in the USD.
The weekly US Department of Energy report saw crude oil inventories climb higher than expected, adding another 2.8 million barrels. The declines in gasoline inventories and in the inventories at Cushing, Oklahoma also reversed and gained last week as well. While oil imports also increased from the prior week. One might ask how the oil price then finished the session 0.4% higher. Despite the clearly disappointing DOE report, the market is becoming quite concerned about the Canadian wild fires raging through the oil sands heartland of Alberta and what this may do to Canadian oil output.
USD/CAD was one of the best performing FX crosses overnight, gaining 1.2%. It has managed to close above the red line (Kijun-sen) for the first time since mid-January and is also sitting on a key resistance level of $1.2870. If the US dollar continues to gain and oil continues to decline, the USD/CAD could be on the verge of a major reversal.