One of the strongest currencies over the past few days has been the loonie. It’s up more than 230 pips against the buck since the start of the week after having failed to take out the upside at 1.3000 level. Higher oil prices. strong funda data and creeping doubt that the Fed will not hike rates more than 2 more times this year have all helped the currency to rally over the past 48 hours.

If the labor data tomorrow surprises to the upside, the markets will begin to price the prospect of BOC rate hikes before the end of summer. Right now the BOC is the only G-7 central bank to seriously consider additional tightening and with the Canadian economy doing better than expected chances are good that BOC may resume its normalization policy soon.

With 1.3000 firmly rejected, the path of least resistance in the loonie is towards 1.2600 and a strong labor number tomorrow could send the pair in that direction before the week is over.

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