The first Friday of the month is often a big trading day in the forex markets because it sees the release of the closely-watched Employment Situation report by the Bureau of Labor Statistics. A surprisingly bullish result for November was revealed in today’s data and this adds further weight to the scales that have already been tipped in the favor of the Fed tightening ahead of other major central banks. The outcome has been the dollar rising to multi-year highs.
By Peter Martin
Saturday, December 6, 2014
Non-farm payrolls surged by 321,000 last month, soaring past the consensus estimate of a 230,000 increase. There were also chunky upward revisions to October and September’s payrolls, for a net increase of 44,000. Perhaps more significantly, there was also a steep increase in wages, with average hourly earnings up 0.4%. The unemployment rate held steady at 5.8%, in line with expectations.
Historically there has been a close correlation between non-farm payrolls growth and GDP growth, and the strength of today’s report bodes well for the health of the economy in the fourth quarter. Wage inflation alongside such robust job creation will have certainly grabbed the attention of the Fed, raising the possibility of an earlier-than-expected rate hike next year.
That has fuelled the dollar’s gains today, pushing EUR/USD down 0.76% to 1.2285 by early afternoon in New York, earlier touching 1.2271, the lowest level for the currency pair since August 2012. The dollar fared even better against the Japanese yen, rocketing up 1.48% to 121.55 and setting a seven-year high in today’s trading.
Decline in Canadian jobs
The US was not the only country with labor data released today: the Canadian labor force survey for November was also out, but its numbers showed a divergent story to its American counterpart. An impressive 43,100 jobs were added to the Canadian labor force in October, a showing so strong that substantial slowing was expected for the subsequent month. A 10,700 decrease came as a big surprise though, the decline driven by the shrinking number of part-time positions. The drop in jobs was enough to push the unemployment rate up from 6.5% to 6.6%. USD/CAD climbed 0.43% to 1.1433, earlier reaching 1.1476: the strongest the US dollar has been against its Canadian counterpart in more than five years.
The Bank of Canada decided to make no rate changes at a policy meeting on Wednesday, leaving its target for the benchmark overnight rate at 1.0%, where it has been held since September 2010. Today’s report would seem to bear out the central bank’s claim that there remains significant slack in the Canadian labor market, despite signs of a broadening recovery and there is therefore unlikely to be a rethinking of its current stance based on this latest indicator.
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