Canadian Dollar Weaker as U.S Payrolls Trumps Canada Jobs

February 6, 2015 Wall Street Journal

February 6, 2015
By: Nirmala Menon

OTTAWA–The Canadian dollar is weaker early Friday, giving up early gains after a surprisingly large job creation figure as the details turned out to be soft and were trumped by a stronger-than-expected U.S payrolls report.

The U.S dollar was most recently at C$1.2468, down from C$1.2435 at Thursday’s close, according to data provider CQG.

The pair fell as low as C$1.2382 after data from Statistics Canada showed the economy created 35,000 net new jobs last month, driving the jobless rate down a tick to 6.6%. The figure trounced the consensus call of a gain of just 5,000, and a steady unemployment rate.

But the Canadian dollar’s gains were short-lived as U.S jobs growth in January also topped expectations and the prior two months gains in that country were revised sharply higher, which bolstered expectations the Federal Reserve would start hiking rates this year.

That contrasts sharply with a dovish Bank of Canada, which cut rates unexpectedly two weeks ago, citing it as “insurance” against the impact of collapsing oil prices. The move has fueled expectations another rate cut is looming.

“On balance, the U.S. report basically hit the right metrics across-the-board. That definitely helps boost the U.S. dollar,” said Scott Smith, senior market analyst at Cambridge Mercantile Group.

On the other hand, Canadian job creation was driven by part-time and self-employment. They are seen as being of lesser quality than full-time work, which declined last month.

It’s a “fairly mediocre report that’s been trumped by the better-than-expected non-farm payrolls of the U.S.,” Mr. Smith said.

He said the reports reinforce the overall narrative of diverging monetary policies in the two countries.

The Bank of Canada will likely stay dovish as the economy is expected to be hampered by lower oil prices and a sluggish jobs market, while the Fed will probably start raising rates in mid-year, Mr. Smith said.

David Tulk, chief Canada macro strategist at TD Securities, said the soft details of the Canadian jobs report, together with downwardly revised revisions to last year’s figures unveiled last week, “affirm a dovish bias that will be captured by another 25 basis point rate cut in March.”

But Mr. Smith isn’t convinced the Canadian central bank will cut again, arguing that data thus far has not shown the need to do so.

“I think they’ll want to wait a bit longer,” he said.