CAD: Stronger than anticipated labor market data boost the Canadian dollar, but the outlook is decidedly gloomy.

Oct 7, 2022
VOT Research Desk

Key News – Insights and Analysis

• CAD increases on the jobs report.
• Employment increased following a number of setbacks
• But salary growth is sluggish.
• the CAD outlook is complicated
• Mortgage holders in Canada are in trouble.
• For CAD, it might soon be “Endgame”.

The Canadian dollar appreciated after the country’s employment data for September, which showed a gain of 21.1 thousand jobs but was far from a “home run,” according to some economists.

The Canadian dollar rose against the British pound and other major currencies in response to the numbers because they suggest the Bank of Canada is not yet in a position to consider ending its interest rate hike cycle. This was ahead of the consensus expectation for job growth of 20K and a sharp increase from August -39.7K.

However, a development that could be troubling is obscured by the decline in Canada’s unemployment rate: According to Statistics Canada, the decline was largely caused by fewer people seeking employment.

The average hourly wage for employees increased by 5.2% from September 2021, from $1.57 to $31.67, with year-over-year wage growth remaining above 5% for the fourth consecutive month.

The message is clear for the Bank of Canada: The labor market is tight, and wage increases are consistent with high inflation in the United States.

The low unemployment rate and robust wage growth “support the sustained hawkish tone from the Bank of Canada Governor,” claims Andrew Grantham, an economist at CIBC Bank.

At the following meeting, the Bank of Canada is expected to increase interest rates by another 50 basis points, but there are reasons to anticipate a slowdown.

Grantham asserts, “After that, signs that a growing number of sectors are slowing down should bring a more cautious approach from policymakers.”

He points out that the majority of new jobs in Canada were advertised in the public sector, particularly in education, where seasonal factors were at play.

Grantham claims that although there was an increase in one industry, many others had declines, indicating that the labor market is being strained by rising interest rates and a slowing economy. There was also improvement in health care outside of that area.

The release of the data may not provide the Canadian dollar with a sustained boost on this basis.

Banks currently offer GBP/CAD exchange rates of roughly 1.4853, while specialized payment companies offer rates of nearly 1.5230.

The Canadian dollar is up two-thirds of a percent today against the Euro, trading at 1.3380. The dollar was down 0.20 percent against the Canadian dollar, falling to 1.3711 as USD/CAD. However, moves will be limited due to a strong U.S. labor market report.

Technical Indicators-USD/CAD

 Daily, Oct 7

Daily, Oct 7