Market Wire: Canadian dollar inches higher after jobs number beats expectations

The Canadian economy again generated more jobs than anticipated last month, further lowering the likelihood of an economic downturn and allowing policymakers at the Bank of Canada to remain squarely focused on inflation risks. According to an update just published by Statistics Canada, 18,200 new positions were added in June, slowing from 87,800 in the prior month while overshooting the 10,000-job consensus forecast. The unemployment rate ticked lower to 6.5% from 6.6% previously, also beating expectations.

Most of the total—17,500 positions—were added in part time roles, but there was little sign of a pullback after the 154,000-job gain in full-time jobs recorded in the prior month, with a net 600 added in June. Hiring ahead of the World Cup may have played a role, boosting the food, accommodation, and recreation areas and helping the services sector add 61,800 jobs, but goods-producing industries shed -43,700 jobs, with the construction and manufacturing sectors suffering the biggest losses. Unexpectedly, the average hourly wage for permanent employees—closely watched by monetary policymakers—rose 3.7 percent from a year earlier, up from 3.2 percent in the prior month.

The print is unlikely to change the game for the Bank of Canada—which we expect to stay on hold this year as domestic demand remains weak and inflation pressures fail to broaden—but US-Canada rate differentials are narrowing slightly and the Canadian dollar is trading slightly stronger as downside risks diminish.

In the background, financial markets are relatively placid, with price action slowing as traders reduce exposure ahead of the weekend. Crude prices are easing in anticipation of a cooling in tensions between the US and Iran, Treasury yields are retracing their steps from earlier in the week, and equity futures are pointing to modest gains at the open. Under this administration, geopolitical policy shifts have frequently occurred while markets were closed for weekends, encouraging traders to cut risk.

Most major currencies are caught in tight ranges, but the Japanese yen is an outlier, strengthening sharply after Finance Minister Satsuki Katayama said the government was pursuing policies designed to encourage Japanese pension funds and households to invest more in domestic financial assets. She explicitly named the Government Pension Investment Fund—one of the world's largest pools of capital—as a target. If even a fraction of the Japanese savings currently deployed abroad were redirected home, the implications for the yen and for global bond markets would be substantial.