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TD Securities’ Global Strategy Team assesses Canada’s January Labour Force Survey as a modest unwind of prior strength, with employment falling but unemployment also declining on weaker supply. They see limited implications for Bank of Canada pricing and expect only tactical US Dollar strength, while structurally looking for the Canadian Dollar to benefit from broader Dollar weakness but lag non-USD peers.
Soft jobs, limited BoC impact, CAD lag
“Employment fell by 25k in January (market: +5k, TD: 0k) to unwind some of the recent labour market strength, although the unemployment rate still fell by 0.3pp to 6.5% on contracting labor supply (market: 6.8%, TD: 6.9%). Stronger hours worked and a favourable full/part time split gave a mixed tone to the report, while wage growth slowed by 0.4pp to 3.3%.”
“This report unwinds only a small portion of the Q4 hiring surge, and as such does little to shift the broader narrative around Canadian labour markets. The BoC had already cautioned that hiring was likely to slow so this report should not weigh heavily on future deliberations, especially with one more jobs report due before the March decision.”
“Rates: Despite an initial kneejerk move higher in rates, markets are looking past the print for the most part. Rates are only 1-2 bps higher, and CAN-US spreads in the front-end are relatively unchanged from yesterday. Given how volatile the employment number can be, we aren’t surprised on how little of an impact this had, and don’t see heavy implications on near-term BoC pricing.”
“FX: We expect some tactical USD strength with upside risks around US data releases. Structurally, we expect CAD to continue to benefit from broad USD weakness, but it will have a tough time outperforming its non-USD peers (EUR, SEK, AUD) which benefit more from resilient global growth, risk-on sentiment and attracting marginal flows away from the US.”
