Canadian Dollar flies on superb jobs report

The Canadian dollar has extended its gains on Monday, after climbing close to 1% on Friday. In the European session, USD/CAD is trading at 1.3396, down 0.35%.

Canada creates over 100K jobs

The final employment report of 2022 was a winner. The Canadian economy surprised with a massive gain of 104,000 jobs, crushing the estimate of 8,000 and up from the November reading of 10,100. The unemployment rate ticked lower to 5.0%, below the estimate of 5.2% and the prior read of 5.1%. The Canadian dollar surged on the strong employment report as well as mixed US numbers, as the nonfarm payrolls was decent but wages and the Services PMI were soft.

Canada’s superb job numbers could play a key factor in the Bank of Canada’s rate decision on January 25th as a 25-basis point increase appears more likely. The markets have priced in a 75% likelihood of a 25 bp move, up from 64% prior to the release. Three of Canada’s major banks are saying they are also expecting a 25-bp increase, which would bring the cash rate to 4.5%. There are two key events next week which could provide clues on what the BoC has planned at its next meeting – the BoC Business Outlook Survey and the December inflation report. BoC Governor Macklem has said that future rate hikes will be data-dependent and the central bank and investors will be closely watching the inflation release.

In the US, nonfarm payrolls came in at 223,000, down from 256,000 but above the estimate of 203,000. This was a decent release, but investors focussed on the bad news. Average hourly earnings rose 4.6%, well off the 5.0% estimate and shy of the prior reading of 4.8%. As well, the ISM Services PMI fell into contraction territory for the first time since May 2020. The index slipped to 49.6, down sharply from 56.5 and the forecast of 55.5. A reading below the 50.0 threshold separates contraction from expansion.  The drop is wages and weak services data indicate that the US economy is slowing and is likely to tip into recession. This could force the Fed to ease up on its pace of rate hikes, and as a result, the US dollar was broadly lower on Friday.

USD/CAD technical

• There is resistance at 1.3522 and 1.3609.

• 1.3358 and 1.3271 are providing support.