TD Securities’ global strategy team views the January Canadian labor force survey as a moderate weakening of prior strength, with employment falling but unemployment also falling amid weaker supply. They see narrow implications for Bank of Canada prices and expect only tactical strength in the U.S. dollar, while structurally expecting the Canadian dollar to benefit from broader dollar weakness but lag behind non-USD competitors.
Soft tasks, narrow BoC impact, CAD delay
“Employment fell by 25k in January (market: +5k, TD: 0k) to alleviate some of the recent labor market strength, although the unemployment rate still fell 0.3 percentage points to 6.5% as the labor supply tightens (market: 6.8%, TD: 6.9%). Increased hours worked and a favorable split between full-time and part-time gave the report a mixed tone, while when wage growth slowed by 0.4 percentage points to 3.3%.”
“This report removes only a tiny portion of fourth-quarter employment growth and, as such, does little to change the broader narrative about Canadian labor markets. The BoC has already cautioned that employment is likely to decline, so this report should not have a major impact on future considerations, especially with one more jobs report expected to be released before the March decision.”
“Rates: Despite the initial piercing move in interest rates, markets are largely looking back. Rates are only 1-2 basis points higher and CAN-US spreads on the front end are relatively unchanged from yesterday. Given the volatility in hiring numbers, we are not surprised how little impact this has had, and we see no major implications for near-term BoC prices.”
“FX: We expect some tactical USD strength with upside risks ahead of US data releases. Structurally, we expect CAD to continue to benefit from broad USD weakness, but will struggle to outpace its non-USD peers (EUR, SEK, AUD) which benefit more from resilient global growth, risk-on sentiment and attracting marginal flows from the US.”
(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)
