Canada's employment report and PMI in focus

Recent economic data have surprised to the downside as the Canadian economy registered no growth in October and showed flat retail sales in real terms. The lack of momentum points to a lacklustre growth in Q4, and the market is starting to wonder if more policy stimulus will be needed in 2016. 

The OIS curve implies a flatter and lower path for monetary policy than a few weeks ago, pricing in almost two-thirds of a 25bp cut for mid-2016. On Thursday, BoC Governor Poloz will speak in Ottawa, and the market will try to find clues about the likely monetary policy stance.

This week, we receive PMI data, building permits and the employment report. December's RBC manufacturing PMI is released on Monday and Ivey PMI on Thursday. December's employment report, released on Friday, should show a better headline print after November's decline, which was due to the winding down of election-related temporary employment. Price action for the loonie will most likely be driven by the NFP report and oil prices. A strong NFP print, combined with a modest local employment reading, could weigh on the CAD this week.