Canadian dollar shrugs off weak job numbers

• Canada’s employment growth falls close to zero
• US nonfarm payrolls hits 216,000 higher than expected

USD/CAD has edged higher on Monday and is trading at 1.3387 in Europe, up 0.19%. There are no tier-1 releases out of the US or Canada today, so we can expect a quiet day for USD/CAD.

The US dollar jumped out of the gates in the first week of 2024 and rose 0.83% against the Canadian dollar.

Canada’s economy created a meager 100 jobs in December, following 24,900 in November and missing the estimate of 13,500. The unemployment rate held steady at 5.8% in December. Wage growth jumped 5.4% y/y in December, up from 4.8% a month earlier. This jump will be unwelcome news for policy makers at the Bank of Canada, as wage growth around 5% is not compatible with the BoC’s inflation target of 2%. This is the fastest pace of wage growth in over a year and will support the central bank continuing to pause rates and put on hold any plans to cut rates.

US nonfarm payrolls end 2023 on high note

The final US employment report of 2023 was stronger than expected. The economy added 216,000 jobs in December, compared to November’s downwardly revised 173,000 and above the estimate of 170,000. The unemployment rate remained at 3.7%, below the estimate of 3.8%. As well, wage growth rose 0.4% m/m and 4.1% y/y in December, higher than the estimates of 0.3% and 3.9%.

The Federal Reserve’s steep rate tightening has cooled off the US economy, but job growth has remained resilient. The wage growth data indicates that inflation in the labour market remains too high for the Fed’s liking. The Fed fund futures markets reacted to the employment report by lowering the odds of a March rate cut to 64%, compared to 68% just prior to the employment report.

The Fed is finally on the rate-cutting bandwagon but the minutes of the December meeting failed to provide any details about the timing of rate cuts. The Fed may well decide to prolong the pause in rates until the second half of the year unless there is a significant drop in inflation or unforeseen weakness in the US economy. Fed Chair Jerome Powell does not seem in any rush to cut rates and the markets may be getting ahead of themselves by pricing an initial rate cut in March.

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USD/CAD Technical

• USD/CAD is putting pressure on resistance at 1.3411. Above, there is resistance at 1.3460
• There is support at 1.3349 and 1.3300

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