US wage growth finally accelerates, Canadian unemployment rate ticks higher

Summary:

• NFP report showed US wage growth accelerating to 2.9% YoY

• Canadian unemployment rate ticks higher on the back of huge decrease in part time employment

• USDCAD moves higher in the aftermath of data release

At the final trading day of the week investors were eagerly awaiting the labour market reports from the US and Canada. North American data pack was released at 1:30 pm BST and immediately sent the USDCAD currency pair higher. In this analysis we take a look at details of both reports.

The US wage growth finally accelerated in August but real wage growth still remains in the negative territory. Source: Macrobond, XTB Research

Let’s start with the US NFP report as its significance for the markets is far greater than its Canadian counterpart. The headline reading showed a 201k increase in employment against expectations of 190k increase. Additionally, let us mention that the previous reading of 157k was revised lower to 147k. Moving on to the probably most important part of the reading at the moment, the US wage growth finally accelerated. Wages rose at the pace of 2.9% YoY after months of lacklustre 2.6-2.7% readings(another 2.7% YoY print was expected). This bodes well for the Fed’s tightening process as higher wages pose a chance of translating into higher price therefore resulting in inflation acceleration. Moreover, the unemployment rate stayed intact at 3.9% while markets expected it to decline to 3.8%. Spare for the weaker unemployment rate reading the labour market report can be generally called positive for the US dollar.

Canadian wage growth significantly decelerated in August. Source: Macrobond, XTB Research

When it comes to the Canadian labour market report things are not as rosy as in the US. Namely, median estimate pointed for a 5k increase in headline employment reading while the report showed total employment shrinking by 51.6k jobs. Looking at the details we can see that the “better” full time employment managed to beat estimate of 35k by coming in at 40.4k. The decline was mostly fuelled by the 92k drop in part-time employment what may reflect summer period coming to an end (30k decrease was expected). In turn the unemployment rate that was forecasted to tick higher from 5.8% to 5.9% came in worse-than-expected at 6%. To add to the grim picture do notice that the Canadian wage growth decelerated from 3% YoY to 2.6% YoY (3% YoY was expected).  

USDCAD surged immediately after the release of labour market reports. Source: xStation5

USDCAD surged immediately after the release of North American labour market reports. The pair jumped from 1.3180 to 1.1381 in a knee-jerk move. A small portion of the bounce higher was erased in the next half an hour. Nevertheless, USDCAD stays at much higher levels than the ones seen prior to the data release. In case this is to improve outlook for the USD in the medium term and deter moods of CAD traders we may see pair moving to the local highs from the end of June around 1.3380 handle. Do notice that the pair broke above the downtrend line after climbing back above the uptrend line earlier. In theory this bodes well for advances in the days to come, especially as no major technical hurdles can be spotted ahead of the aforementioned peak at 1.3380.

USDCAD trades above both uptrend and downtrend lines and may be set to test the recent peak around 1.3380 in the nearby future. Source: xStation5