Published September 9, 2016
- Stats Canada reported this morning that Canada created 26k jobs during August, beating forecasts for a 15k print and reversing some of the 31k jobs lost during July
- However, the details were not as rosy as the headline would suggest…
- First, the jobs market in Canada has created a mere 77k jobs over the last 12 months, all of which are part time
- Second, the August report highlighted that jobs increased for those aged 15-24 and over 55, but declined for those aged between 29-55
- This is consistent with the creation of lower paying jobs (which is poor for the inflation outlook), confirmed when we look at the industry breakdown
- Employment rose in the lower paying public administration sector and fell in the higher paying professional, scientific and technical services sectors
- An encouraging sign is that the participation rate rose during August, however, the fact that fewer jobs were available for the main income earners (29-55) is rather discouraging and highlights the structural problems within the labour markets
- As a result of the increase in people looking for work, the unemployment rate rose to 7.0% from 6.9%
- So, while the headline was rather encouraging, the details indicate that the Bank of Canada will have difficulty raising rates any time soon and, while it remains a remote chance, it would seem that a cut is more probable than a hike given the current landscape
- USDCAD rose on the news and is sitting at the 1.3000 handle as I type
- Interestingly, the market has increased odds of a Fed hike in September – it now stands as 29% from a low of 14% earlier this week
- Driving this change are expectations surrounding two key Fed speeches today and Monday – will Fed officials once again make the case that the economy can withstand a rate hike?
- The bond market seems to think so as US 2yr yields have risen 8% since yesterday afternoon
- All of this means that volatility is increasing for USDCAD traders so preparing for future exposures becomes all the more important
Charts: (1) USDCAD forming a base near 1.2825. (2) Economic Calendar. (3) Fed Interest Rate Probability.