Canadian dollar soars after employment report

The Canadian dollar is almost unchanged today, trading at 1.3483.

Canadian dollar flies on job gains

It was a day to remember for the Canadian dollar, which rocketed almost 2% higher on Friday. The driver behind the spike was a massive gain in jobs at 108, 300 in October, up from 20,000 in September. The reading crushed the forecast of 10,000. Wage growth rose to 5.5%, up from 5.2%, while the unemployment rate was unchanged at 5.2%.

The employment gain was especially impressive as it was spread across the economy and was made up entirely of full-time jobs. The Bank of Canada, which hiked rates to 3.75% after a 50 basis point increase in late October is likely to respond with additional oversize hikes. The markets have priced in a 70% chance of a 50 basis point increase in December, and the terminal rate is projected at 4.5%.  At the October meeting, BoC Governor Macklem said that the BoC was closer to ending the tightening cycle, while acknowledging that the BoC was far from achieving its goal of lowering inflation to its 2% target. Headline inflation has slowed to 6.9%, but core inflation has persisted.

In the US, the nonfarm payrolls sent mixed and somewhat confusing signals to the market. The October reading of 261,000 was stronger than the consensus of 200,000, but it marked the smallest gain since December 2020. The unemployment rate rose to 3.7%, up from 3.5%, while wage growth rose to 5.5% YoY, up from 5.2%. The latter release is likely to keep the Fed concerned about inflationary pressures.

Bottom line? The jobs report indicates that the labour market remains robust and although a 50-bp hike is likely, a 75-bp move remains a possibility. There is one more employment report and two more inflation releases ahead of the December 14^th FOMC decision, each of which should be treated as a market-mover.

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USD/CAD Technical

• USD/CAD faces resistance at 1.3420 and 1.3586
• There is support at 1.3364 and 1.3248

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