**Canadian Employment Rebounds Strongly, Prompting USD/CAD Reversal**
*Based on original reporting by Kathy Lien of BK Asset Management, published on Seeking Alpha*
The Canadian dollar (CAD) reversed course sharply earlier this week, buoyed by the strongest monthly employment report since 2022. Prior to the release of Canadian labor data, USD/CAD had been rallying due to broader U.S. dollar strength. However, an unexpectedly strong surge in job creation tipped the balance, serving as a turning point for the currency pair.
Below is an expanded and in-depth analysis of this development, its implications for the CAD, potential consequences for the Bank of Canada (BoC), and broader forex market reactions.
## Headline Figures From the Canadian Employment Report
According to Statistics Canada, the Canadian labor market added 90,400 jobs in April 2024, more than triple the 20,000 that economists had forecast. This marked the biggest one-month gain in employment since January 2023, underscoring surprising strength in the Canadian economy.
Key highlights of the report include:
– **Total jobs added**: 90,400 (forecast: 20,000)
– **Unemployment rate**: 6.1%, unchanged from the previous month
– **Full-time employment**: +50,000 jobs added
– **Part-time employment**: +40,400 jobs added
– **Labor force participation rate**: 65.6% (up from 65.4%)
– **Wage growth (year-over-year)**: +5.7%
The breadth and depth of the employment increase were noteworthy. Gains were broad-based across sectors, with notable improvements in health care, education, accommodation, and construction.
## Impact on USD/CAD
Following the release of the employment data, USD/CAD fell sharply, reversing earlier gains and triggering a technical breakdown of key support levels.
Key forex developments:
– USD/CAD dropped over 100 pips in the hours following the jobs report release.
– The pair fell below the 1.3700 support zone, thereby nullifying its short-term bullish trend.
– Technical indicators confirmed bearish momentum, with the Relative Strength Index (RSI) turning lower and signaling room for further downside.
Before the report, the pair had been trending higher due to:
– The U.S. dollar’s general strength, fueled by sticky U.S. inflation data
– Federal Reserve officials remaining hesitant to commit to rate cuts in the short term
– Soft Canadian economic data from prior weeks
However, the dynamic shifted dramatically with the latest employment data, signaling renewed confidence in the Canadian economy.
## Sectoral Breakdown of Employment Gains
Looking deeper into industry-specific employment, Statistics Canada reported that gains were spread across several major sectors, highlighting resilient domestic demand and improved confidence among Canadian employers.
– **Health care and social assistance**: +25,000 jobs
– **Educational services**: +17,000 jobs
– **Construction**: +15,700 jobs
– **Accommodation and food services**: +14,000 jobs
– **Public administration**: Little change
– **Manufacturing and transportation**: Minor job losses
This diversification in job growth is crucial as it suggests that the Canadian labor market is not overly reliant on any single sector. It also hints at broader macroeconomic strength that may support GDP growth in the coming quarters.
## Wages Growth: Boon or Challenge?
A critical element of the jobs report was the acceleration in wages, which rose 5.7% year-over-year. This reading came on top of several months of consistently strong wage growth averaging over 5%.
Implications:
– **Positive for consumer spending**: Higher wages improve purchasing power for Canadian households, providing support to retail sales and GDP.
– **Inflation worries**: The BoC has often cited wage inflation as a significant risk factor. Persistent wage increases could lead to second-round inflation
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