Canadian Jobs Surge Shocks Markets; USD Mixed Against CAD

UPDATE: In a surprising turn of events, Canada’s economy has delivered a robust employment report that is shaking up currency markets as of December 5, 2023. The USD has closed mixed today, with the most significant movement against the CAD, following the release of unexpected GDP data.

The USDCAD plummeted by 0.93%, falling below critical support levels at 1.3900. This drop marks a significant shift as the Canadian dollar benefits from the unexpected strength in the labor market. Meanwhile, the USD also decreased against the AUD by 0.44%, despite a weekly increase of around 1.4% for that currency pair, making it the biggest mover of the week.

The catalyst for this volatility was Canada’s November jobs report, which revealed a remarkable 53.6K employment gain, far exceeding the anticipated -5.0K decline. The unemployment rate fell to 6.5%, significantly lower than the 7.0% forecast, although this decrease was partly driven by a dip in the participation rate to 65.1%.

The report showed a mixed composition: while full-time jobs decreased by 9.4K, part-time employment surged by 63.0K, down from the previous month’s 85.1K. Wage growth for permanent employees remained steady at 4.0% year-over-year, indicating a resilient labor market.

“This report delivers a decisive upside surprise, pushing joblessness sharply lower and contradicting expectations of labor-market cooling,”

said an economist following the release. As the Bank of Canada has already indicated a pause in interest rate hikes, today’s data could spark renewed discussions about tightening policy, potentially making a significant impact on the Canadian dollar.

In the United States, fresh data shows a mixed economic picture. Personal income rose by 0.4% in September, surpassing expectations of 0.3%, while personal consumption increased by 0.3%, aligning with forecasts. However, headline PCE inflation edged up 0.3%, maintaining the year-over-year rate at 2.8%, the highest in a year. Core PCE, the Federal Reserve’s preferred inflation measure, increased by 0.2%, consistent with prior months.

Consumer sentiment also saw a boost, with the preliminary December University of Michigan Consumer Sentiment Index climbing to 53.3, beating expectations of 52.0 and significantly improving from 50.3 previously. While current conditions softened to 51.0, expectations surged to 52.1, signaling improved future outlooks. Notably, inflation expectations eased, with one-year inflation dropping to 4.1% from 4.7%.

Overall, these developments suggest ongoing consumer demand despite rising inflation, which could influence Federal Reserve decisions. As the U.S. stock market reacted, major indices mostly trended higher to conclude the week, reflecting investor optimism amid these mixed signals.

Looking ahead, traders are advised to keep an eye on further economic indicators and any shifts in central bank policies that could arise from today’s surprising job data in Canada. The outcomes could reshape currency valuations and have lasting implications on both sides of the border.