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Barclay’s argues that if non-farm payrolls surprise to the upside, the Canadian dollar will be the best performer.
How does an investor position for such an upside surprise? The temptation is to be long the USD against a currency with a high sensitivity to US interest rates such as the JPY. However, with the Fed having already stated that it would need plenty of persuading to do anything on monetary policy, USD gains may be somewhat limited. On the other hand, strong US numbers would be good for those economies around the US whose central banks might be more willing to tighten monetary policy. Canada’s economic linkages with the US and the US’s importance in the Bank of Canada’s monetary policy decision making process (as the BoC has reminded us time and time again in its statements) make a long CAD trade attractive from this standpoint. Furthermore, an historical study of G10 currency performance following payroll surprises shows that the CAD has tended to outperform other G10 currencies on upside surprises to NFP (Figure 4).