Canada: Mixed messages from jobs report but consistent with a July hike - TDS

Analysts at TDS note that Canada’s job growth came in below expectations at -7.5k in May (TD: 8k, mkt: 24k) while an unexpected jump in wages to 3.9% y/y was sufficient to muddle the overall message.

Key Quotes

“The unemployment rate held at 5.8%, indicative of little improvement in slack since late last year.”

“We prefer to look past the sharp pickup in LFS wage growth given the impact of minimum wage hikes and divergence against alternative measures that have moderated. However, this report is still consistent with a tight labour market and with Q2 GDP tracking above 2% should help solidify July rate hike expectations. Looking ahead, however, our view remains unchanged for only one more rate hike this year.”

“Rates: Even the large downside surprise was not enough to trigger a significant re-pricing in the curve beyond a modest steepening. Pricing for July is roughly fair with ~70% chance of a hike priced in.”

“FX: The report was a wash for the CAD overall. With the curve priced for tightening and trade talks souring, we continue to think the return profile for CAD is asymmetrically skewed to the downside into key event risks this week. We are seller on rallies with a preference on crosses and note 1.30 as a key anchor for USDCAD, with 1.3040/50 as a very important pivot point.”