The CAD will take center stage this week with CPI, retail sales, Bank of Canada rate decision and statement, BOC Monetary Policy Report, and BOC press conference. Last Friday’s Canadian employment report appeared good on the surface with the economy adding 28.7K jobs for the month of March, which was much stronger than the 1K that was expected. The unemployment rate also held steady at 6.8% versus a forecast for a rise to 6.9%. Below the surface, the headline number masked the underlying weakness as all of the job growth was in part-time work with the economy actually losing 28k full-time jobs. Since the beginning of 2015, the economy has added 104K part-time jobs and lost 30K full-time jobs. Furthermore, the employment component of IVEY PMI shows how the index has moved below the key 50 boom/bust line and has been in downtrend since November 2014.
Bank of Canada Governor Poloz has been nervous about Canada’s economy, and for good reason, as we have yet to witness the knock out effects of the steep fall in oil prices. He has described Canada’s first quarter performance as "atrocious" and even used the word "recession" when explaining why stimulus is needed. Poloz has proven with his cut at the January meeting that he is capable of surprising the market, so you can’t rule out a move. However, the downtrend in the CAD has done a lot of the heavy lifting that a cut in interest rates would deliver and crude has thus far stabilized around the $50 level. Thus, we believe that he will refrain from cutting rates, wishing to save his bullets for more desperate times, especially if the price of crude resumes its downtrend in search of a new bottom amid swelling oil inventories. Having said that, the CAD may not gain any traction from a pass on a BOC rate hike as the USD continues its bullish break out of its recent consolidation. 
The week prior the AUD was the worst performer as it was weighed down by the expectation of an interest rate cut by the Reserve Bank of Australia; and when the RBA took a pass the AUD shot up to become the best performer last week on the short squeeze that followed. The second worst performer the week prior, the USD, became the second best performer last week as the market completely unwound the move spurred by the disappointing jobs data at the end of last week. The change in the market’s mindset appears to have placed the possibility of a June Fed rate hike back on the table. Last week’s release of the FOMC minutes and commentary by NY Fed Chief Bill Dudley, a well-established dove, suggested that the Fed was still considering the move towards normalization as early as this summer. This was all the USD bulls needed to hear to break out of its recent corrective consolidation. Lately, any normalization rhetoric by any Fed member (voting or non-voting) seems to fuel USD buying, making every anti-USD rally an easy sell for now. 
A bombshell decline in Chinese exports percolated fears that global growth is losing energy and sent undulations through world currency markets on Monday. The USD strengthened for a third day as signals of cooling in China’s economy highlighted the diverging fortunes of the world’s two biggest economies. Figures showing the biggest drop in overseas sales from China for a year and a nose-dive in imports took financial markets by surprise.
The data from China’s General Administration of Customs showed its export sales shrank by 15% in March compared to a year ago and imports fell by 12.7% in a third consecutive month of declines, raising anxieties about wavering domestic demand. Economists had been expecting a 12% rise in exports – yes, you read that correctly! They said the surprise fall may point to weaker than expected first quarter economic growth from Beijing on Wednesday. The drop in exports left the trade surplus in March at $3.1bn, well below forecasts of $45.4bn in a Reuters poll of economists – a 93% difference.
The despair around the trade figures was compounded by the World Bank cutting its growth forecasts for East Asia, with Chinese growth revised down to 7.1% from 7.2% in 2015.
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