The surging Canadian economy added almost 80,000 jobs in December for the second month in a row, boosting chances the Bank of Canada could hike interest rates in the first quarter of 2018 for what would be the third time in less than a year.
Statistics Canada on Friday reported 78,600 new positions in December, smashing analysts’ expectations of a modest 1,000 jobs gain. The jobless rate dipped to a 41-year low of 5.7 percent.
The Bank of Canada raised rates last July and September after sitting on the sidelines for almost seven years and analysts expect more hikes this year after improvements in the labor market and inflation.
The central bank’s next two fixed rate announcement dates are Jan. 17 and March 7.
“(This) could shift the dial on the Bank of Canada decision at the next policy meeting,” said Sal Guatieri, senior economist at BMO Capital Markets, who had previously predicted the next hike would be in March.
“I’m not sure whether we’ll change our view at this point … but the jobs number has shifted the odds much higher,” he said in a phone interview.
The Canadian dollar quickly jumped to as high as C$1.2367 to the U.S. dollar, or 80.86 U.S. cents, up from C$1.2505, or 79.97 U.S. cents, before the data release.
Separately, Statscan said Canada’s trade deficit grew to C$2.54 billion ($2.05 billion) in November from C$1.55 billion in October as imports posted their biggest surge in more than eight years.
The Bank of Canada is increasingly confident the economy will need less stimulus over time, Governor Stephen Poloz said in mid-December in an end-of-year speech.
Part-time employment in December jumped by 54,900 jobs while 23,700 full-time positions were added. On a year-over-year basis employment increased by 422,500, or 2.3 percent, the most since November 2007.
“It certainly fits with a central bank that is likely to lift rates this quarter. January should be viewed as a live meeting,” said Andrew Kelvin, senior rates strategist at TD Securities.
Poloz says the Bank of Canada will look at several data points before making a rates decision.
The central bank has long fretted about the export sector, which did well in November as shipments of goods rose by 3.7 percent, the most in a year.
But this was overshadowed by a 5.8 percent increase in imports, the most since a 7.8 percent leap seen in July 2009.