The Canadian Dollar took a hit on Friday, losing 0.4% against the US Dollar. This drop was fueled by a disappointing report on net new job additions in Canada for the month of October. While the country did see an increase in average wages, this also contributed to inflation expectations remaining high. The Bank of Canada has been maintaining downward pressure on interest rates, but with wages on the rise, it may soon run out of options.
The employment data for Canada in October showed a much lower than expected increase in new jobs, coming in at just 14.5K compared to the forecasted 25K. This miss in job gains is a concerning sign for the Canadian economy, especially as wages continue to rise at a faster pace. The average hourly wages in October grew by 4.9% year on year, adding to inflation pressures and complicating the BoC’s efforts to stimulate economic growth solely through interest rate cuts.
Despite the disappointing job figures, the Canadian Unemployment Rate held steady at 5.5%, bucking expectations of a rise to 6.6%. However, this stability in the unemployment rate may be misleading, as long-term unemployed workers may have dropped out of the reference period for the data. The Canadian Labor Force Participation Rate has been steadily declining, currently sitting at 64.8%, the lowest level since the global recovery from the COVID-19 pandemic in mid-2020.
The Canadian Dollar has been struggling to make significant gains against the US Dollar, with USD/CAD hovering near 14-month highs around 1.3960. The lackluster performance of the Loonie can be attributed to a combination of factors, including the ongoing pressure from the BoC’s interest rate policies and the overall strength of the US Dollar. The technical recovery in the Canadian Dollar has been hampered by these factors, keeping the pair trading above the 1.3900 handle.
Overall, the economic outlook for Canada remains uncertain as the country grapples with sluggish job growth and rising inflation expectations. The BoC’s efforts to stimulate the economy through interest rate cuts may face challenges in the face of increasing wages and persistent inflation pressures. Investors will be closely monitoring future economic data releases to gauge the health of the Canadian economy and the potential impact on the value of the Canadian Dollar in the foreign exchange markets.
