USD/CAD drops as US/Canada Employment data heavily deviate from consensus

• USD/CAD has dropped sharply to near 1.3320 amid headwinds of upbeat Canadian labor market data and downbeat US NFP.
• Although US Employment numbers missed consensus, a steady pace in wages is sufficient to keep inflation stubborn.
• Upbeat Canadian labor market data has strengthened the chances of one more interest rate hike from the BoC.

The USD/CAD pair demonstrated severe volatile spikes after the release of the labor market data by the United States and Canada. The Loonie asset has slipped to near 1.3320 as the US Employment data has missed estimates while Canada’s labor market outperformed expectations.

US Bureau of Labor Statistics has reported that fresh additions of Nonfarm Payrolls (NFP) in June were 209K while investors were expecting an increase of 225K. In May, fresh payroll additions were 306K. The Unemployment Rate has dropped to 3.6% as expected by the market participants.

No doubt, labor additions failed to match expectations, monthly pace in Average Hourly Earnings was higher than anticipated. Firms’ payroll expenditures maintained 0.4% and remained higher than the consensus of 0.3%. Also, Annualized Average Hourly Earnings remained at a steady pace of 4.4%.

Although Employment numbers missed consensus, a steady pace in wages is sufficient to keep inflationary pressures stubborn and might force the Federal Reserve (Fed) to push interest rates higher.

On the Canadian Dollar front, employment numbers have soared dramatically. Statistics Canada has reported fresh additions of 59.9K employees vs. the estimates of 20K. In May Canadian laborforce witnessed a lay-off of 17.3K employees. The jobless rate has increased to 5.4% vs. the estimates of 5.3% and the prior release of 5.2%. Upbeat Canadian labor market data has strengthened the chances of one more interest rate hike from the Bank of Canada (BoC). Investors should note that BoC Governor Tiff Macklem has already raised interest rates to 4.75%.

A poll from Reuters showed that the Bank of Canada (BoC) will hike interest rates by 25 basis points (bps) to 5% in July. This would be the last nail in the coffin and after that, the monetary policy would remain stable for a longer period.