News & Analysis

It was our expectation that today’s Canadian and US labour market reports would show a stark divergence, not only in net employment but also in underlying metrics. This ultimately played out, with the US jobs market adding 194k jobs in September compared with expectations of a 500k increase, while Canada added 157.1k jobs relative to expectations of just a 60k net employment gain.

While the negative surprise in the US data was partially offset by an upwards revision to August’s data, from 235k to 366k, and a more convincing increase in private payrolls, Canada’s data is robust across the board; wages increased from 1.2% to 1.7%, while the rise in employment was completely driven by an increase in full-time workers, and there were even signs of part-time workers being offered full-time contracts. The result of this divergence saw USDCAD dip briefly below the 1.25 level, before the loonie stabilised just shy of a 0.5% gain on the day.

 

Canada’s labour market data to keep the BoC on track to taper in October

Anecdotal evidence from the BDC report and sequential momentum in the Canadian labour market over the past few months suggested the risks were always tilted to the upside for today’s report. The net employment figure is only the tip of the iceberg as we’re seeing rotation from part-time to full-time work, and average hours worked starting to recover towards pre-pandemic levels.

While there was some softness in the data, it was only slight – the recovery in accommodation and food services employment regressed at the margin.

However, on the whole, today’s labour market report suggests it is only a matter of time until wage pressures start to build, supporting our expectation that the BoC will continue tapering at a rate of C$1bn at October’s meeting.

 

September’s MoM sectoral change in net employment

 

The recovery in accommodation and food services employment slightly regresses in September

 

US labour market data underwhelms, but won’t derail the start to the Fed’s taper

Compared with Canada’s labour market data, the risks heading into today’s Nonfarm Payrolls release were titled to the downside (as we highlighted in the Week Ahead). The early survey period this month was the main risk, as it didn’t allow much time for the labour market to adjust to the national expiration of the unemployment insurance top-up on September 6th, nor did it allow much time for parents to return to the labour force now schools have reopened.

While much of the market impact was mitigated by the upwards revision in the August data, and the expectation that the net employment undershoot this month will just be delayed until October’s reading, the dollar did dip slightly across G10 markets upon the release.

We don’t expect this marginal USD weakness to extend into next week, largely due to the solid expectations that the Fed will begin its tapering process next week and the USD supportive macroeconomic backdrop.

The broad dollar follows front-end yields lower following the negative NFP surprise

 

Author: Simon Harvey, Senior FX Market Analyst

 

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