The Canadian Dollar (CAD) slumped 0.4% against the U.S. Dollar (USD) on Friday after Canada’s October employment report fell short of expectations, curbing hopes for a near-term technical recovery. The disappointing jobs data, coupled with an unexpected rise in average wages, adds new challenges for the Bank of Canada (BoC) as it grapples with inflationary pressures and economic uncertainty.
Jobs Data Misses Expectations, Weighs on CAD
The Canadian economy added just 14.5K jobs in October, well below the 25K forecast and a steep decline from September’s stronger 46.7K gain. While the unemployment rate held steady at 5.5%—contrary to predictions of a rise to 6.6%—the numbers reveal a weakening labor market. The steady unemployment rate, however, may mask underlying issues, as Canada’s labor force participation rate dropped to 64.8%, nearing its lowest level since the early recovery phase of the COVID-19 pandemic.
The lackluster jobs growth places additional strain on the Canadian Dollar, which has been under pressure in recent weeks. This miss complicates the BoC’s position as it attempts to balance interest rates to curb inflation while nurturing a sluggish economy.
Rising Wages Keep Inflation Expectations High
Adding to the BoC’s dilemma, average hourly wages increased by 4.9% year-over-year in October, up from 4.5% in September. This wage growth keeps inflation expectations simmering, making it challenging for the central bank to consider aggressive interest rate cuts without risking inflation spikes. Higher wages typically increase consumer spending, which can exacerbate inflation—a scenario the BoC is eager to avoid amid economic uncertainty.
As inflation expectations remain elevated, the BoC may be forced to tread cautiously in lowering interest rates, which could further delay a rebound for the CAD.
Also read : USD/CAD Hits 1.3900 Support- Insights On The CAD’s Weakness And Future Rate Cut Implications
U.S. Consumer Sentiment Boosts the Greenback
Compounding the CAD’s struggles, Friday saw the U.S. Consumer Sentiment Index rise to 73.0 in November, beating the expected 71.0 and boosting the USD. A stronger U.S. economy generally supports the USD, making it an attractive option for investors and putting further pressure on the CAD as it trades close to its 14-month lows against the Greenback. The USD/CAD pair reached near 1.3960 in early November and remains firmly above 1.3900 as the USD’s resilience outweighs the CAD’s lackluster performance.
