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Strong jobs reports bolster rate bets

223,000 jobs were created in the United States last month, and the unemployment rate fell further – giving the Federal Reserve further motivation to raise rates. According to data released by the Bureau of Labor Statistics this morning, the unemployment rate dropped to 3.5 percent in December, and the participation rate moved up to 62.3 percent from 62.1 in the prior month, indicating that some workers are coming off the sidelines. Average hourly earnings rose 4.6 percent year-over-year, slower than expected, but still well beyond levels that would suggest inflation pressures have receded.

Ahead of the release, investors were positioned for a 200,000-job gain, with the unemployment rate seen holding at 3.7 percent.

The dollar slipped on the print as well-prepared traders took gains, but Treasury yields are holding steady on the front end of the curve, suggesting that investors are bracing for continued tightening from the Federal Reserve.

Canada generated a remarkable 104,000 jobs in December, smashing expectations for a 5,000-position increase. According to data released by the national statistics agency this morning, the unemployment rate fell to 5 percent from 5.1 percent in November. Average hourly wages climbed 5.1 percent on a year-over-year basis, decelerating slightly relative to the 5.4 percent pace recorded in the prior month.

The data will help reinforce odds on a 25 basis point move at the Bank of Canada’s meeting later this month, and are helping to propel the Canadian dollar higher against the dollar and other major – but we would caution that other headwinds are building, meaning that longer-term rate differentials are likely to remain tilted against the loonie.

USD doldrums continue
Canadian jobs growth tops expectations, but details point to slowdown ahead
The peso’s bull run has run out of steam.
The fiscal outlook still looks favourable.
Canada's economy is slowing.
Nearshoring hopes look overdone.