The much-anticipated Canadian January jobs data came in at just over 37,000, more than doubling the 15,000 figure market analysts had expected. This helped the Canadian dollar gain approximately 0.25 of a penny against the US dollar. However, because the vast majority of the gains were in the form of part-time employment, accounting for approximately 48,000 jobs, while full-time employment actually fell by just over 11,000 jobs, the USD/CAD pairing quickly stabilized at a new weekly high (CAD/USD low).
While the Canadian jobs report is not as strong as the headline might indicate, highlighting a worrying trend of a reduction in full-time work, it still provides the Bank of Canada (BoC) with enough breathing room to hold off on any imminent rate cuts. More importantly, as far as investors are concerned, it allows the BoC to align more closely with the Federal Reserve (Fed).
The Canadian economy and consumers, given their level of indebtedness, are seen as being more sensitive to interest rates. Any economic news that allows the BoC to keep pace with respect to delaying interest rate cuts is seen as beneficial to the Canadian dollar. However, overall, the BoC is expected to cut interest rates sooner and more aggressively than the Fed.
While most analysts expect the Canadian dollar to strengthen against the US dollar, reaching the 1.30 range within a year, due to broad US dollar weakness as the US economy realigns with other developed economies, the Canadian dollar’s gains are expected to be more muted compared to other G10 currencies. This is attributed to an increasing number of Canadian consumers refinancing their mortgages in a relatively higher interest rate environment.