Statistics Canada is set to release its Labour Force Survey report on August 9, with market participants anticipating mixed results that could impact the Bank of Canada’s (BoC) current rate-cutting cycle.
In July, the BoC reduced its policy rate by an additional 25 basis points, bringing it to 4.50%, following a similar quarter-point cut in June. The central bank signaled that further rate cuts could be on the horizon if inflation continues to move toward the bank’s 2.0% target, projected for late 2025.
The BoC has noted a significant cooling in the domestic labor market, though wage growth remains high compared to productivity growth. Statistics Canada reported a decrease of 1,400 jobs in June, ending two months of job gains, while the unemployment rate increased for the third consecutive month, reaching 6.4%.
In terms of economic growth, the BoC now projects Canada’s Gross Domestic Product (GDP) to grow by 1.2% in 2024, down from an earlier estimate of 1.5%. The bank expects annualized GDP growth of 1.7% in Q1, 1.5% in Q2, and 2.8% in Q3.
Market Expectations Ahead of Unemployment Rate Release
Attention is focused on the upcoming Canadian labor market report, particularly wage inflation data, which could influence the BoC’s decision on future interest rate cuts. Consensus among market analysts expects a slight increase in the unemployment rate to 6.5% for July, up from 6.4% in June. Additionally, the economy is projected to add approximately 27,000 jobs, reversing the 1,400-job loss in June. Average Hourly Wages, a key indicator of wage inflation, rose by 5.2% in June, up from a 4.8% increase the previous month.
Minutes from the BoC’s July meeting, released on August 7, revealed concerns about weaker-than-expected consumer spending in 2025 and 2026, which influenced the decision to cut rates last month.
Analysts at TD Securities forecast a 30,000 job increase in July, driven by a rebound in the service sector, though they believe this will not prevent the unemployment rate from rising to 6.5%. While increased labor market slack could boost the BoC’s confidence that inflation and wage pressures will continue to ease, wage growth is expected to remain high, even with a slight deceleration to 5.1%.
Implications for USD/CAD
The Canadian unemployment rate for July will be released on Friday at 12:30 GMT, alongside the Labour Force Survey. A further cooling of the labor market could strengthen the case for the BoC to continue cutting interest rates, potentially applying downward pressure on the Canadian dollar. This scenario could reverse the recent pullback in USD/CAD, which surged in mid-July, reaching as high as 1.3950 for the first time since October 2022. However, the Canadian dollar has since regained some ground, pushing USD/CAD back to the low 1.3700s earlier this week.
Senior analyst Pablo Piovano from FXStreet suggests that further retracements in USD/CAD could occur in the short term, with provisional support levels at the 55-day and 100-day SMAs at 1.3714 and 1.3689, respectively. The more significant 200-day SMA at 1.3601, reinforcing the July low of 1.3584, could provide strong support. If bullish momentum returns, the next target for USD/CAD could be the 2024 high of 1.3946, followed by the key 1.4000 mark.
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