Bullish Reversal in USDCAD After Jump in Canada Unemployment

The Canadian dollar (CAD) weakened this week, with USDCAD climbing over 1.5 cents from its recent lows, reaching 1.3507. This occurred as Canada’s unemployment rate increased from 6.4% to 6.6%, marking a two-point rise from its previous lows. In addition, the Bank of Canada (BoC) refrained from holding rates steady, opting instead for a third consecutive 25 basis point rate cut.

The broader picture includes not only weak US jobs data but also rising unemployment in Canada. The BoC’s decision not to implement a more aggressive 50 basis point rate cut signals concerns about central banks falling behind the inflation curve. Additionally, crude oil prices have hit their lowest level since 2021, further weighing on the loonie’s performance.

USD/CAD Chart H4 – The 100 SMA Has Been Broken

 USD/CAD was trading below 1.35, but jumped 80 pips higher, closing the week above 1.3570. However we also had The US jobs report which tends to overwhelm the Canada jobs report, so the impact of both sent the price higher, and now the trend has turned bullish after the break of the 100 SMA (green) with the 50 SMA (yellow) turning into support on the H4 chart.

Canada August Employment Report

• Employment change: +22.1K vs +25.0K estimate (previous month: -2.8K)
• Unemployment rate: 6.6% vs 6.5% estimate (highest since the 2021 Covid period, prior 6.4%)
• Full-time employment: -43.6K (previous month: +61.6K)
• Part-time employment: +65.7K (previous month: -64.4K)
• Participation rate: 65.1% (previous month: 65.0%)
• Average hourly wages (YoY): +4.9% (previous month: +5.2%)

By Demographics:

• Core-aged women (25-54): +20,000 jobs (+0.3%)
• Other demographic groups: Employment held steady

By Industry:

• Increases:
  • Educational services: +27,000 (+1.7%)
  • Health care and social assistance: +25,000 (+0.9%)
  • Finance, insurance, real estate, rental, and leasing: +11,000 (+0.8%)
• Decreases:
  • Other services: -19,000 (-2.3%)
  • Professional, scientific, and technical services: -16,000 (-0.8%)
  • Utilities: -6,800 (-4.5%)
  • Natural resources: -6,500 (-1.8%)

By Region:

• Increases:
  • Alberta: +13,000 (+0.5%)
  • Nova Scotia: +5,000 (+1.0%)
  • Manitoba: +4,400 (+0.6%)
  • Prince Edward Island: +900 (+1.0%)
• Decreases:
  • Newfoundland and Labrador: -2,400 (-1.0%)

Hours Worked:

• Total hours worked: -0.1% (little change in August)
  • Up 1.4% compared to 12 months ago

Average Hourly Wages:

• Year-over-year wage growth: +5.0% (up $1.69 to $35.16)
  • Wage growth was +5.2% in July (not seasonally adjusted)
• Unemployment: 1.5 million unemployed people in August 2024, an increase of 60,000 (+4.3%) from July and up by 272,000 (+22.9%) from August 2023.

June and July showed declines of -2.8K and -1.4K, so August’s gain is a relief, but is offset from the unemployment rate moving up 2 points to 6.6% from 6.4% last month. The mix of the Full and part time is also not great with the gain of 61.6K in full time last month, saw most of that reversed with -43.6K decline this month.

Overall, the trend is still weaker and supports further monetary policy reaction from the BOC. This week the BOC did cut rates by 25 basis points with Macklem saying if projections on inflation prove out, further cuts can be expected.

USD/CAD Live Chart