The headline Canadian jobs gain was a positive surprise today but digging into the details tells a different story. Virtually all the job gains were in government jobs and the unemployment rate rose to 6.8% from 6.6% in another jump in population estimates.
The jobless rate at 6.8% is now the highest since September 2021 and much higher than the pre-pandemic rate of 5.9%. Before the pandemic, the BOC overnight rate was 1.75% compared to 3.75% now and if you go back to 2017 when unemployment was at similar levels, the BOC was at 1.00%.
The thinking in the market is that the Bank of Canada is well-behind the curve and the market is now pricing an 80% chance of a 50 bps cut next week from about 50% before the data.
Layer in government estimates for a decline in population next year and ongoing stresses in housing and you have a recipe for a struggling economy. With that, the Canadian dollar is on track to close at a four-year low.
Looking at the USD/CAD chart, it busted through 1.41 and is within striking distance of the cycle intraday high of 1.4178 set late last month.
Looking at the bond market, there is some help coming to Canadian mortgage holders with 5-year benchmark Government of Canada yields down 12 bps today to 2.82%, which is back to early-October levels.
A wide spread is opening up against similar US yields, which are trading at 4.03% today. That should keep pressure ont eh currency.
