Canadian Dollar Weighs on GBP/CAD as Labour Market Shows Resilience
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The Canadian Dollar edged higher against the US Dollar and Pound on Friday after Statistics Canada data cast the local labour market in a resilient light for July, potentially easing the central bank’s concerns about the jobs outlook.
Canada’s Dollar recovered off intraday lows against the greenback and Sterling after data showed employment falling 2.8k in July, deepening the contraction from June and undershooting the consensus for a 22.5k increase.
The unemployment rate held steady at 6.4%, however, when it had been expected to rise to 6.5% while all of the job losses reported were in the part-time category.
“The minutes from last month’s Bank of Canada policy decision highlighted growing concern regarding the state of the labour market, and today’s data will do little to ease those concerns even with the jobless rate holding steady,” CIBC Capital Markets economists said following the release. “We see the Bank of Canada cutting interest rates by 25bp in each of the three remaining policy decisions this year.”
Above: GBP/CAD shown at 15-minute intervals alongside USD/CAD.
Full-time employment continued to grow robustly, with a 61.6k increase almost entirely offsetting the 64.4k decline in part-time employment, while average hourly wage growth moderated to 5.2% YoY, from 5.6%.
Strong growth in full-time employment and stable unemployment mean the Bank of Canada may be less likely to worry about the condition of the labour market, making a September rate cut less likely at the margins.
However, the large decline in part-time employment and continued retrenchment of pay growth also makes clear that the labour market is no longer the inflation risk it was once perceived as.
For that reason the data also makes an argument for the BoC to continue reducing the restrictiveness of its monetary policy by incremental reductions in the cash rate, which was cut to 4.5% in July.
Overnight index swap rates continued to imply on Friday that the cash rate is likely to fall to 3.75% by year-end, suggesting the BoC is expected to cut rates at each of its remaining meetings this year.
The Canadian dollar edged higher against the US Dollar following the report while pushing GBP/CAD back toward support coming from the 38.2% Fibonacci retracement of the April rally around 1.7485.
“GBP’s break above long-term trend resistance (now support at 1.7300) suggests corrective dips for the pound remain an attractive technical buy,” said Shaun Osbourne, chief FX strategist at Scotiabank.
“Per recent comments, short-term counter-trend corrections into the 1.7350/1.7450 range should be well-supported,” Osbourne added in an early August review of the Canadian dollar charts.
Above: GBP/CAD shown at daily intervals alongside USD/CAD.
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