Canadian Dollar Advances on Canadian Jobs Blowout
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The Canadian Dollar advanced ahead of the weekend after Statistics Canada announced a significant increase in the labour force for January that was on par with the non-farm payrolls number seen across the border just last week, leading to a slump in GBP/CAD.
Canada's labour market absorbed another 150k people last month, ten times more than the 15k anticipated by consensus among economists, in what is a highly supportive outcome for the economy and its prospects in the year ahead.
The rub for the rallying Canadian Dollar, however, is that unemployment remained steady at 5% while wage growth softened in annualised terms and an outcome that means there is no enhanced inflation risk or pressure for the Bank of Canada (BoC) to go further with its interest rate.
"The Bank of Canada's conditional pause on interest rates was likely done partly so that policymakers didn't feel the need to respond to any single strong data print, no matter how strong, but rather assess how the economy is faring," says Andrew Grantham, an economist at CIBC Capital Markets.
"However, that won't stop markets reacting to today's strong data by pricing in a greater probability of further hikes, and pricing out rate cuts," he adds.
Grantham and colleagues say strong population growth and an increase in participation appear to have been behind the January increase in employment, hence the stable unemployment rate and dip in wage growth.
"Higher wages due to long-run structural labour shortages could reignite spending, and inflation. Without greater business investment, higher interest rates could be needed to offset this force," writes Carrie Freestone, an economist at RBC Capital Markets, in an earlier Thursday briefing.
Friday's data followed hard on the heels of minutes from January's Governing Council meeting revealing that Bank of Canada policymakers were torn between leaving interest rates unchanged last month and a decision to lift the cash rate by another quarter percent.
In the event the BoC raised the benchmark by 0.25% to 4.5% but said it now intends to hold it at current levels while observing the economic effects of what has already been its strongest monetary tightening cycle for decades.
"While the BOC still may decide to keep rates steady at 4.5% when it next meets on March 8, the next move is likely to be higher rather than lower given the tightness of the job market," says Joe Manimbo, an FX analayst at Convera.