Canadian Dollar Rises through G10 League Table after Data Reveals Fastest Jobs Growth Since 2010

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- CAD rises through G10 ranks after solid labour data.

- Canadian jobs growth hits 10-yr high, joblesness falls.

- Analysts say data reduces case for BoC interest rate cut.

The Canadian Dollar shot higher and recovered earlier losses from many rivals Friday after official data showed the economy creating new jobs at a rapid clip in April, making a mockery of a consensus that looked for only meagre growth. 

Canada's economy created 106.5k new jobs in April, more than reversing the -7.1k contraction seen in March and marking the labour market's best performance since April 2010, which was enough to push the unemployment down by 10 basis points toa new multi-decade low of 5.7%. 

Just less than half of that number, or around 41k new jobs, was the result of an increase in employment of those between the ages of 18 and 24, although these roles are largely part-time.

However, there was still more than 70k full-time jobs created in Canada during recent month. All of the job gains were concentrated in Ontario, Quebec, Alberta, and Prince Edward Island.

"So much for the soft economy. Suddenly a lot of Canadian young pepole decided that they needed to work, and they helped power a massive surge in employment in April if today's data are to be taken at face value," says Avery Shenfeld, chief economist at CIBC Capital Markets. 

Markets care about the labour market data because falling unemployment and improving job creation, according to conventional thinking on the subject, put upward pressure on wages and can have implications for interest rates.

Changes in interest rates are only made in response to movements in inflation but impact currencies because of the push and pull influence they have on international capital flows and their allure for short-term speculators.

"The month-over-month headline employment swings are notoriously volatile – so there is reason to take even a 107k increase with a big grain of salt.  But this is also not the first strong employment report we’ve seen for Canada. The employment count is up 426k from a year ago, for a whopping average monthly increase of 36k per month over that period," says Nathan Janzen, an economist at RBC Capital Markets. 

Above: USD/CAD rate 4-hour intervals.

The USD/CAD rate was quoted -0.53% lower at 1.3397 following the release after reversing an earlier 0.10% gain, and is now down -1.5% for 2019.  

The Pound-to-Canadian-Dollar rate was -0.43% lower at 1.7443 in the wake of the release, after reversing an earlier 0.11% gain, and has now risen 0.24% this year. 

"The undertone may remain soft in the short-term as the market corrects recent gains. However, the broader tone here—determined by the GBP-bullish move above the 40-day MA and bullish trend signals on the medium and longer term studies—suggests limited downside risk for the GBP at this point. We look for support on softness to the 1.7500/50 range," says Eric Theoret, a strategist at Scotiabank.

Above: Pound-to-Canadian-Dollar rate at 4-hour intervals.

Friday's data comes at a time when the global economic cycle is at an inflection point and financial markets are in flux as investors attempt to gauge the trajectory of central bank interest rates in various parts of the world. 

The Bank of Canada (BoC) abandoned last month earlier plans to lift its interest rate further over the course of 2019 and now markets are looking for clues as to whether 2019 growth will be sufficient enough for the BoC to reverse course and become optimistic again, or if it will compell interest rate cuts later in the year.  

"The Bank of Canada already knew that labour markets were looking solid when they moved sharply to the sidelines in terms of future interest rate hikes over the last few months," says Janzen. "That should still leave the Bank of Canada with plenty of flexibility to hold off on interest rate hikes any time soon. Data also, though, continues to argue that a cut is at least as unwarranted at the moment."

The BoC's official position is now that interest rates could either go up or down in the next change, which is a policy shift that was brought on in part by the global economic impact of the U.S-China trade conflict. 

Both Chinese and Eurozone economies have slowed since the U.S. tariffs were implemented in the middle of 2018 and many analysts expect the U.S., which is Canada's largest trade partner, to also slow this year. Canada's economy weakened too. 

Canadian GDP growth nearly halved in 2018, falling from 3% previously to just 1.8% last year. That was mostly the result of a -30% final quarter fall in oil prices but the Bank of Canada has also identified trade uncertainties as a significant impediment to business activity in some sectors.

"Growth during the first half of 2019 is now expected to be slower than was anticipated in January. Last year’s oil price decline and ongoing transportation constraints have curbed investment and exports in the energy sector. Investment and exports outside the energy sector, meanwhile, have been negatively affected by trade policy uncertainty," the BoC told markets in April. 

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