Forex News
- The Unemployment Rate in Canada was unchanged last month.
- USD/CAD flirts with its 200-day SMA in the low-1.3800s.
Statistics Canada reported on Friday that the Unemployment Rate held steady at 6.7% in March, coming short of what markets were expecting.
Additionally, the Net Change in Employment increased by 14.1K jobs, reversing the 83.9K drop seen in the prior month. In addition, the participation rate stayed the same at 64.9%, and wages are still growing at a 5.1% annual pace, up from February’s 4.2% annual gain.
Market reaction
The Canadian Dollar (CAD) maintains a negative bias following the publication of the jobs report on Friday, with USD/CAD navigating above the 1.3800 region and challenging its key 200-day SMA.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Commerzbank’s Michael Pfister and Norman Liebke note that Mexico’s latest inflation data and Banxico minutes support a dovish stance. With only minimal forecast revisions and no immediate need to react to the Iran war shock, they expect further rate cuts if energy pressures stay contained and project that the Mexican Peso will weaken over coming months.
Soft inflation response and weaker peso
"Overall, the meeting minutes confirm Banxico’s recent, rather dovish decision to cut interest rates again. This has only reinforced our general assessment that Banxico is leaning toward a dovish stance and could deliver further rate cuts this year."
"Accordingly, at least for now, there is no cause for panic for the Mexican central bank (Banxico), as was recently confirmed in its meeting minutes. Nor do central bankers see any reason to deviate from their current interest rate policy in the coming months due to the war in Iran."
"Furthermore, they also confirmed that the fiscal measures implemented at the beginning of the year are unlikely to have any further second-round effects on inflation. Accordingly, inflation forecasts were revised upward only minimally."
"Only if energy prices were to remain at current levels for an extended period and energy inflation were to seep into the components of core inflation would the Mexican central bank be justified in raising rates. However, we are currently still far from that scenario and do not anticipate it in our base case."
"We therefore continue to expect the Mexican peso to depreciate over the coming months."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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