Introduction to Canada’s Employment Rate
The unemployment rate in Canada has risen to 6.8% in December, up from 6.5% in November. This increase was unexpected, as market expectations were at 6.6%. On a monthly basis, the net change in employment was +8.2K, which exceeded analysts’ estimate of -5K.
Average Hourly Wages and Participation Rate
In this period, average hourly wages rose by 3.7% on a yearly basis, compared to 4% in November. The participation rate also rose to 65.4% from 65.1%. These numbers indicate a slowdown in the job market, which could have unfavorable effects on the Canadian Dollar (CAD).
Market Reaction to Canada Employment Data
The release of these data did not trigger a noticeable market reaction. At the time of press, USD/CAD was virtually unchanged on the day at 1.3868. This lack of reaction may be due to the fact that the data was not significantly different from market expectations.
Canada Employment Overview
The Canadian labor market data for December showed a reduction in the labor force, with 5K workers being fired, against hiring of 53.6K job-seekers in November. The unemployment rate rose to 6.6% from the prior release of 6.5%. Signs of a slowdown in the job market are expected to be unfavorable for the Canadian Dollar (CAD), as they could boost the need for interest rate cuts by the Bank of Canada (BoC) in the near term.
How Could the Canadian Employment Data Affect USD/CAD?
USD/CAD extended its two-week-long rally to near 1.3871 on Friday ahead of the US NFP data release. The 20-day Exponential Moving Average (EMA) has turned higher to 1.3793, and the pair holds above it, preserving a near-term bullish bias. The 14-day Relative Strength Index (RSI) at 60 (bullish) confirms improving momentum without overbought pressure.
Technical Analysis
Measured from the 1.4142 high to the 1.3646 low, the pair has risen to near the 50% Fibonacci retracement at 1.3894. A daily close above the same would extend the rebound toward the 61.8% Fibonacci retracement at 1.3952. On the contrary, the upside bias could fizzle out if it failed to break above 1.3894, which might lead to a correction toward the 23.6% Fibonacci retracement at 1.3763.
Understanding Labor Market Conditions
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. A very tight labor market can also have implications on inflation levels and thus monetary policy.
The Importance of Wage Growth
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
Conclusion
In conclusion, the recent increase in Canada’s unemployment rate and slowdown in the job market may have unfavorable effects on the Canadian Dollar (CAD). The market reaction to the data was minimal, but the technical analysis suggests a potential extend of the rebound toward the 61.8% Fibonacci retracement at 1.3952. Understanding labor market conditions and wage growth is crucial for assessing the health of an economy and making informed decisions about monetary policy.
