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Canadian employment stumbles into year-end with a 63K decline in December. Unsurprisingly, the CAD ignored the data. Economists at TD Securities expect the loonie to remain on good behavior for now but they think the market might be a tad complacent on development in US rates. 

Key quotes

“The labour market recovery stumbled into year-end with total employment falling by 63K in December to unwind the previous month’s increase as a more aggressive set of public health restrictions weighed (primarily) on the service sector.” 

“Details were not quite as downbeat as the headline print might suggest, with job losses driven by part-time workers (-99K) with an offsetting (36K) rise in full-time employment, and hours worked fell by just 0.3% MoM. The unemployment rate edged higher to 8.6% (from 8.5%) after a 0.2pp decline in the participation rate.”

“Today’s data does not reveal the full impact of the second wave of COVID-19 and recent lockdowns, but there are still some positive aspects to this report. The modest decline in hours worked hints at a (relatively) tame growth headwind and momentum remains solid for those industries less affected by public health measures. Job losses are likely to pick up next month, but ongoing fiscal support will provide some stability.”

“Currency markets have had a loose relationship with the data since the pandemic began, so it is no surprise that the CAD barely budged on a negative surprise. That said, a slightly better composition with regards to the full-time gain keeps the CAD in our good graces for now.” 

“The 1.26/1.27 range in USDCAD should remain intact. Going forward, however, we are concerned that the grind higher in US rates may have more to go. Our sense is that USD bears might be a bit complacent on this.”