The Canadian dollar climbed to an eight-week high of 1.39 per USD after stronger-than-expected domestic employment data narrowed yield differentials between Canada and the US. Canadian employment increased by 75,100 jobs in July, far surpassing expectations for a 15,000 gain, while the unemployment rate fell to a two-year low of 6.4%. In contrast, the US economy unexpectedly lost jobs in July, and previous nonfarm payroll figures were revised sharply lower.
The relative strength of Canada’s labor market has increased the likelihood of a Bank of Canada rate hike, particularly if elevated energy prices persist, while the weaker US employment data has dampened expectations of a Federal Reserve rate increase this year. At the same time, recent data indicate that the Canadian economy grew at an annualized rate of 3.4% in the second quarter, significantly above the Bank of Canada’s forecast of 2.5%.
