Some (Belated) Thoughts about Canada's Jobs Data

Canada reported April jobs data earlier today.    Canada grew 58.2k jobs after 82.3k in March.  Unlike what we have seen in the US, the participation rate actually rose as 72.5k people joined the workforce. 

The actual jobs growth was 6-fold greater than expected and the March-April period was the strongest in 30 years.  Yet, perhaps there is less here than meets the eye, The employment data is so volatile that taking a slightly longer view suggests Canada's employment data is not really much better than we have in the US proportionately. 

Remember the US is 10x bigger than Canada.  In the past 6 months Canada has averaged 25k full time jobs a month.  The US 206k private sector jobs.    Over the past year, Canada has averaged about 18k a month.  The US 169k.   The US dollar is posting an outside day against the Canadian dollar, meaning that ti traded on both sides of yesterday's range and the US dollar. 

The most bullish sign for CAD would be for the dollar to close below yesterday's low near CAD0.9977.  My guess is that it won't.  Moreover, the Canadian dollar did not manage to make a new high on the week.  It is not that I am negative on it, though market positioning is stretched and the price action has not impressed me.  I would show support for the US dollar near CAD0.9900-CAD0.9930.

The market may also be getting ahead of itself in its expectation, reflected in the OIS (overnight index swaps) that the Bank of Canada will hike rates later this year.  Indicative prices suggest about a 40% chance of a 25 bp hike.  This seems too much.  Weak commodity prices, the unexpectedly large drop in the IVEY PMI does not speak to the need to raise rates.  Moreover,  a rate hike so far ahead of when the Fed is likely to move and given the uncertainties from Europe and China does not seem to be very likely.  Next week's CPI data is also likely to confirm that that price pressures remain contained and there is not urgency on rates.