Canadian employment figures in January showed an impressive increase in job creation. Employment increased by 37,300, far exceeding the market forecast of 15,000, while the December figure was revised higher, to 12,300. Moreover, the unemployment rate declined, reaching 5.7% compared to 5.8% in December and the market prediction of 5.7%. On the other hand, average hourly wages decreased from 5.7% to 5.3% year-on-year in the previous month.
These employment figures will probably be examined extensively by the Bank of Canada. The significant increase in job creation indicates a healthy labor market, but the slowdown in wage growth raises concerns. A key component driving inflation is wage growth, and given the current downward trend, the BOC may decide to stick with a cautious approach and delay a possible rate cut until at least mid-year. The central bank’s emphasis on tying inflation to its 2% target is reflected in its dedication to “higher for longer” interest rates.
On the other hand, the Federal Reserve is still adamantly against a rate cut in March. Although Fed officials recognize that inflation is on a downward trend, they remain cautious and want to avoid acting too quickly as the fight against inflation is far from over. As per the Fed’s statement, market expectations of a rate cut in March have declined significantly, from over 70% in December to just 17% currently.
In the foreign exchange market, the Canadian Dollar strengthened past the 1.3450 level continuing the bounce from the 1.3543 level reached in early February, as a strong domestic labor report added leeway for the BOC to keep interest rates tight and continue to control inflation. This has resulted in a greater degree of pessimism in the Canadian economy. The BOC still notes that high interest rates are hindering growth, while inflation remains an elevated risk.
From a technical perspective, USDCAD intraday bias is still neutral at this point and more consolidation could be seen. Further upside is slightly favorable as long as 1.3357 support holds. On the upside, a decisive break of 1.3543 will resume the upside from 1.3176. This will also show that the entire decline from 1.3898 has been completed, and target this resistance. Nevertheless, a strong break of 1.3357 support will declare that the rebound from 1.3176 is complete, and target this low to resume the decline from 1.3898.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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