Economists: Jump in Part-Time Jobs Unlikely to Halt Bank of Canada’s Rate Cut Plans

May 11, 2024
Economists: Jump in Part-Time Jobs Unlikely to Halt Bank of Canada’s Rate Cut Plans May 11, 2024 Lennox Hamilton

Economists suggest that despite a surge in part-time employment, the Bank of Canada remains inclined towards implementing interest rate cuts in June.

Market Response and Exchange Rate Dynamics

Following reports that Canada added 90,000 jobs in April, far surpassing the consensus forecast of 18,000, and with the unexpected maintenance of the unemployment rate at 6.2%, the Canadian Dollar experienced an uptick in value. Consequently, market expectations for a June rate reduction receded, pressuring exchange rates such as the Pound to Canadian Dollar pair to 1.7095 and the U.S. Dollar to Canadian Dollar pair to 1.3651.

Assessment by Analysts

Kyle Chapman, FX Markets Analyst at Ballinger Group, underscores that despite the seemingly robust job figures, a closer inspection reveals nuances. He notes that the majority of job gains were in part-time roles, and any remaining increases can be attributed to population growth. Chapman emphasizes the volatility of economic data, suggesting caution in overinterpreting a single data point.

Factors Influencing Monetary Policy

Furthermore, Chapman highlights the decline in the average hourly wage for permanent employees, a metric closely monitored by the Bank of Canada. He posits that weak domestic demand and a significant rise in the unemployment rate over the past year have entrenched a disinflationary trend, potentially paving the way for a June rate cut.

Karl Schamotta, Chief Market Strategist at Corpay, echoes Chapman’s sentiment, noting the continual expansion of slack in the Canadian economy. Schamotta observes that while job creation has occurred, the growth rate of the labor force outpaces it.

Monetary Policy Outlook

Corpay anticipates a rate cut in June, aligning with the prevailing sentiment in the market. However, Schamotta suggests that further positive surprises in economic data could moderate expectations for subsequent rate cuts throughout the year.

Implications for the Canadian Dollar

This assessment may lend support to the Canadian Dollar, particularly if expectations for rate cuts escalate in other jurisdictions.

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