Canadian Dollar Flies on Superb Jobs Report

01/09/2023

1 minute read

2023.01.09 07:51

The Canadian dollar extended its gains on Monday, climbing close to 1% on Friday. In the European session, is trading at 1.3396, down 0.35%.

Canada Creates Over 100K Jobs

The final employment report of 2022 was a winner. The Canadian economy was surprised with a of 104,000 jobs, crushing the estimate of 8,000 and up from the November reading of 10,100. The ticked lower to 5.0%, below the estimate of 5.2% and the prior read of 5.1%. The Canadian dollar surged on the strong employment report and mixed US numbers, as the were decent, but and the Services PMI were soft.

Canada’s superb job numbers could play a key factor in the Bank of Canada’s rate decision on Jan. 25, as a 25-basis point increase appears more likely. The markets have priced in a 75% likelihood of a 25 bp move, up from 64% before the release. Three of Canada’s major banks also expect a 25-bp increase, which would bring the cash rate to 4.5%. There are two key events next week that could provide clues on what the BoC has planned at its next meeting – the Survey and the December report. BoC Governor Macklem has said that future rate hikes will be data-dependent, and the central bank and investors will closely watch the inflation release.

In the US, nonfarm payrolls came in at 223,000, down from 256,000 but above the estimate of 203,000. This was a decent release, but investors focussed on the bad news. Average hourly earnings rose 4.6%, well off the 5.0% estimate and shy of the prior reading of 4.8%. Also, the fell into contraction territory for the first time since May 2020.

The index slipped to 49.6, down sharply from 56.5 and the forecast of 55.5. A reading below the 50.0 threshold separates contraction from expansion. The drop in wages and weak services data indicate that the US economy is slowing and is likely to tip into recession. This could force the Fed to ease up on its pace of rate hikes, and as a result, the US dollar was broadly lower on Friday.

USD/CAD Daily Chart