Canadian Dollar Weaker As Job Data Falls Short

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The GBP/CAD exchange rate increased due to a decline in Canadian employment during July. However, the exchange rate’s potential upside may be limited by a significant surge in wage settlements.

The Canadian Dollar faced a general weakening after Statistics Canada reported a 6,000-job decrease in employment for July. Although a minor drop, this figure was well below the market’s anticipation of a positive 21,100 increase in employment.

This unexpected outcome has led to reduced expectations for future interest rate hikes by the Bank of Canada, subsequently putting pressure on Canadian bond yields and the CAD.

Nevertheless, the downside for the Canadian Dollar might be constrained by a noteworthy 5% year-on-year increase in wages up to July. This figure represents a substantial rise compared to the previous reading of 3.9%. The Bank of Canada may express concerns about this development as it potentially contributes to inflationary pressures.

Andrew Grantham, an economist at CIBC Capital Markets, explains, “Today’s employment report brought mixed messages for the Bank of Canada, with the job count declining unexpectedly but wage growth accelerating much more than anticipated. Today’s data is unlikely to convince the Bank of Canada that the labor market has loosened enough yet to sustainably achieve its 2% CPI target, despite the weaker headline jobs count.”

Although the employment report’s signals are conflicting, the prevailing market sentiment (resulting in a weaker CAD) suggests that the decrease in employment could curtail the sustainability of such substantial wage increases.

Carrie Freestone, an economist at the Royal Bank of Canada, notes, “The Bank of Canada will closely monitor wages for signs of additional inflationary pressures, but higher unemployment rates mean broader underlying wage pressures are easing.”

GBP/CAD Long (Buy)
Enter At: 1.71580
T.P_1: 1.73289
T.P_2: 1.74948
T.P_3: 1.76135
T.P_4: 1.77229
S.L: 1.67766

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