In the early American session on Friday, the USD/CAD pair reached a fresh four-month high, touching 1.3640. The surge in the Loonie asset can be attributed to contrasting labor market reports from the United States and Canada.
The upbeat news from the United States Bureau of Labor Statistics (BLS) revealed a significant boost in Nonfarm Payrolls, with 303K fresh payrolls added, surpassing expectations of 200K and the previous reading of 270K. Additionally, the Unemployment Rate dipped to 3.8%, lower than both consensus estimates and the prior reading of 3.9%. This robust labor market performance has tempered market expectations for the Federal Reserve (Fed) to initiate interest rate reductions, which were previously anticipated to commence at the June meeting.
The trend of strong labor demand typically leads to increased wage growth as employers compete for workers, subsequently stimulating consumer spending and maintaining inflation levels.
In contrast, Statistics Canada reported a disappointing employment situation for March, with a net loss of 2.2K jobs, contrary to investor forecasts of a gain of 25K positions. The Unemployment Rate in Canada surged to 6.1%, surpassing expectations of 5.9% and the previous reading of 5.8%. However, there was a silver lining in the form of annual Average Hourly Earnings, which saw growth accelerate to 5.0% from 4.9% in February.
This disparity in labor market performance between the two countries may prompt expectations for differing monetary policy actions. While the strong labor demand in the US has bolstered the appeal of the US Dollar, with the US Dollar Index (DXY) extending its gains to 104.65, the weak labor demand in Canada could fuel speculations of the Bank of Canada (BoC) resorting to rate cuts sooner than anticipated.
