CAD Net Shorts Break Trendline

CAD net shorts vs USD have risen to their highest since March 2014, breaking the 29-month trendline support and suggesting CAD sentiment among speculators is further endangered. Although net longs US crude oil saw their first increase in 5 weeks, CAD sentiment deteriorated. This week's CAD sentiment figures will be closely watched following Friday's Canada jobs report.

Canada: Jobs vs growth

Canada's July jobs report narrowly escaped 2^nd consecutive monthly contraction thanks to a net 6.6K rise in employment, underlying the resilience of the labour market despite a technical recession. But there's more inside the numbers.

The dichotomy between services and manufacturing industries continues with service-producing sectors added a net 19k jobs in July, versus a net loss of 12k jobs in goods-producing industries. Although natural resources sectors lost only net 2k jobs, four times that amount was lost in construction, with 5k eroded in manufacturing. The bulk of service-sector employment occurred in professional jobs, while finance and insurance saw a net 10k loss.

Canada's technical recession has become the central national topic ahead of the October elections. Whether it is GDP that is leading jobs or the inverse remains to be seen.

Based on our anticipation for US crude to fall below $40, the Bank of Canada will be forced to maintain a dovish bias into the rest of the year. The falling loonie may help damage control in exports, but the looming end of the driving season will further trigger the cyclical shift in Canada's economy.