Forex Jobs Matchup: U.S. and Canada

Both the U.S. and Canada printed stellar employment figures for January, but which among these two North American countries fared better in the jobs showdown and what could this mean for USD/CAD’s forex price action? Let’s dig a little deeper into the numbers to find out:

U.S. Non-Farm Payrolls

us nfp report dollarThe U.S. kept up its streak of impressive NFP figures, as the economy added 257K jobs in January, stronger than the projected 236K gain. A quick review of the past releases indicates that the U.S. has been churning out better-than-expected NFP readings for the past four months!

To top it off, the December reading was upgraded to show a 329K increase in hiring from the initially reported 252K rise. Summing up the upward revisions in previous releases gives an additional 147K in hiring gains.

Surprisingly, the jobless rate climbed from 5.6% to 5.7% last month, yet forex market participants figured that this was mostly a result of an improvement in labor force participation. The participation rate climbed from 62.7% to 62.9%, indicating that better employment prospects are encouraging more Americans are resume their job search.

Wage growth was also on the up and up, with average hourly earnings showing an annualized 2.2% gain from January, higher than the previous month’s 1.7% increase. This confirms that the momentum in the U.S. jobs market is translating to higher salaries, allowing consumers to enjoy better purchasing power and contribute more to growth.

Canadian Jobs Report

Canada also printed strong jobs figures for December, as the employment change indicated a 35.4K increase in hiring. This was much better than the estimated 4.7K rebound and enough to keep the jobless rate steady at 6.6% instead of increasing to the projected 6.7% figure.

This caps off the country’s back-to-back employment declines in November and December, spurred mostly by the oil industry slump. A closer look at the components of the January report, however, indicates that most of the hiring gains were in part-time jobs while full-time employment barely budged.

In addition, revisions to previous data also reveal that the Canadian jobs situation is not as rosy as the January headline figures suggest. In fact, Statistics Canada showed that the economy added only 121K jobs in 2014, a 30% downgrade from the initially reported 185.7K gain.

This weakening labor outlook led more Canadians to exit the labor force and give up looking for work, as the participation rate fell from 65.9% to 65.7%. Analysts predict that these numbers could get worse since the layoffs among oil-related companies have yet to be reflected in the coming months.

What’s next for USD/CAD?

The boom in the U.S. jobs market has led several economic experts to predict that the Fed might be able to start hiking interest rates by June this year. After all, FOMC officials sounded a bit more hawkish in their latest rate statement, hinting that they are already starting to consider normalizing monetary policy.

On the other hand, Canada’s ongoing employment slowdown and weak jobs prospects suggests that the BOC could stick to its dovish stance. The central bank already announced an interest rate cut in last month’s policy decision, but they might need to do more in order to keep their economy afloat.

With that, USD/CAD could be in for further upside, especially if these labor trends persist and if expectations of a Fed rate hike grow stronger. Do you think this will be the case in the coming months?

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  • Mr.Ice Cube

    How does the participation rate effect the market ? If participation rate is higher does it means that people have more hope to find better , new job ? How will this effect the market ?

    • The participation rate basically shows if the change in the jobless rate was actually caused by an improvement in hiring or if it was just a result of people giving up on the jobs situation. It may not directly affect forex price action but I do believe it provides clues on how the labor market might fare moving forward.