Canadian Dollar: The Wrong Kind of Jobs Growth

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A jump in part-time jobs is unlikely to sway the Bank of Canada from cutting interest rates in June, say economists.

The Canadian Dollar rose on news Canada created 90K in April, easily beating consensus forecasts for 18K, and that the unemployment rate unexpectedly stayed at 6.2%, defying expectations for an increase.

Market-implied expectations for a June rate cut receded on the back of these data, pressuring the Pound to Canadian Dollar exchange rate to 1.7095 and the U.S. Dollar to Canadian Dollar exchange rate to 1.3651.

But CAD strength might prove shortlived as the bulk (more than half) of the job gains were driven by part-time positions.

"The headline jobs number looks like a stellar recovery at first glance, but the report is not as strong as it looks. The majority of the jobs created were part-time, a significant amount of those left over can be explained by population growth, and recent volatility in the data means you can’t overinterpret a single piece of data. That’s why it doesn’t really change the narrative for me," says Kyle Chapman, FX Markets Analyst at Ballinger Group.

In addition, the average hourly wage for permanent employees - closely watched by the Bank of Canada - fell to 4.8%.

"Domestic demand is weak, and the unemployment rate has increased dramatically over the past year, which has embedded the disinflationary trend. Barring an upside beat in inflation data in a couple of weeks, the Bank of Canada can still go ahead with cutting in June," says Chapman.

"Slack in the Canadian economy is still growing," says Karl Schamotta, Chief Market Strategist at Corpay. "The labour force grew by 112,000 people in the month, outpacing job creation."

Corpay looks for a June rate cut, but says that further upside surprises in the data might reduce the number of rate cuts that can be expected over the remainder of the year.

This can support CAD, particularly if rate cut expectations ramp-up elsewhere.