Canadian Dollar: Job Report Cools Odds of 50bp Rate Cut says Corpay

Written by Karl Schamotta, Chief Market Strategist at Corpay.

The Canadian dollar is climbing after the economy added more jobs than expected in September, lowering the likelihood of an outsized rate cut at the Bank of Canada’s upcoming meeting.

Numbers published by Statistics Canada show the country generated 46,200 new jobs in the month, well above expectations that had been set closer to the 27,000 mark.

There is no evidence of an acceleration in the pace of layoffs, and the report’s internals look quite favourable - full-time roles jumped by 112,000 while part-time fell 65,300, and the private sector added a net 61,200 while the public sector shed 23,600.

The labour force expanded less than anticipated - likely as a result of recent policy shifts - and the unemployment rate fell to 6.5 percent from 6.6 percent in August, narrowing a gap with the US measure that has historically helped determine long-run performance in the Canadian dollar.

We think officials will continue to depress rates in quarter-point increments at coming meetings: given a lower starting point and an earlier kickoff to its easing cycle, Canada’s policy rate is much closer to neutral than in the US, and signs of improving economic sentiment are becoming more obvious to many market participants.

But many others are expecting a more decisive move - including former Deputy Governor Paul Beaudry - and it’s not unreasonable to think that policymakers could seize on the opportunity opened up by last month’s outsized cut from the Federal Reserve to provide a similar boost to the Canadian economy.