In the US, the ADP employment figure is expected to reveal an additional 9.5 million job losses during last month – much better compared to April’s 20 million decline, but still very much worrying for the health of the US labour market. Because it is all about expectations, a better than expected read should support the presently building idea that the post-Covid recovery would be stronger than previously thought, however a negative surprise could have the opposite effect of denting the investor mood, remind that the crisis is not over yet and bring investors back on earth.
Else, the Bank of Canada (BoC) is expected to maintain its overnight rate unchanged at the historical low of 0.25%. With the support of improved oil prices, the BoC could wait and see the impact of near zero rates before taking further action. The USDCAD pulls lower on the mix of a broadly softer US dollar and steady recovery in oil prices. The pair is testing the 200-day moving average (1.3490) to the downside. Technical indicators point at oversold market conditions, meaning that some correction would be health at the current levels. However, we revise our medium-term Loonie outlook from negative to neutral, conditional to the continuation of steady recovery in oil prices as economies reopen.
WTI crude is testing the $38 per barrel. OPEC and Russia are expected to announce further production cuts this week, up to 9.7-million-barrels which equals roughly 10% of the global oil output. But, with the prospects of lower production and improved global demand being broadly priced in, the upside potential could soon be exhausted. Hence the announcement of further production cuts itself may lead to some profit taking before the critical $40 level. Support is seen near $35/33 pb area.
