USD/CAD drops to near 1.4300 after US-Canada employment data

The USD/CAD pair falls to near 1.4300 in North American trading hours on Friday. The Loonie pair drops after the release of the employment data for January in both the United States (US) and Canada.

The Canadian labor market report came in surprisingly stronger than expected. The report showed that the economy added 76K workers in January, beating the estimate of 25K but remaining lower than the December reading of 91K. The Unemployment Rate decelerated to 6.6% from expectations of 6.8% and the previous release of 6.7%.

Signs of strong labor market data are expected to provide a big relief for the Canadian economy, which is facing the risk of economic slowdown. It appears that the impact of interest rate cuts yet taken by the Bank of Canada (BoC) is coming into effect. However, upbeat labor market data is unlikely to force traders to pare BoC dovish bets as risks of inflation undershooting the central bank’s target of 2%

Meanwhile, the US employment data showed that the labor demand remains weak. The Nonfarm Payrolls (NFP) report showed that employers hired added 143K job-seekers in January, significantly lower than estimates of 170K and the former release of 307K, upwardly revised from 256K. The Unemployment Rate decelerates to 4% from the estimates and the prior reading of 4.1%.

However, the Average Hourly Earnings data, a key measure of wage growth, surprisingly came in higher than projected. On year, the wage growth measure rose at a faster pace of 4.1%, compared to 3.9% in December. Month-on-month Average Hourly Earnings data rose at a faster pace of 0.5% against estimates and the former release of 0.3%.

Hot wage growth data is likely to boost market speculation that the Federal Reserve (Fed) will keep interest rates at their current levels for longer.