Canada’s unemployment rate for July is 6.9%, staying the same as last month and better than the expected 7%. However, there was a loss of jobs, with a net change of -40,800, instead of the predicted gain of 13,500 positions. The employment rate dropped by 0.2 percentage points to 60.7%. This decline mainly affected young people aged 15 to 24, who lost 34,000 jobs. Employment for core-aged individuals (25 to 54 years) and those 55 and older did not change much. The participation rate also slightly decreased to 65.2%.

Average Hourly Wages Rise

Average hourly wages increased by 3.5% compared to last year, up from 3.2% in June. This employment news impacted the Canadian dollar, putting some downward pressure on it. At the time, the USD/CAD was trading at 1.3760. The Bank of Canada kept interest rates at 2.75% and noted that the Canadian economy remains strong despite global uncertainties. Even though employment rose unexpectedly in June, recent GDP figures showed an economic decline in May, with slight growth expected in Q2. Market forecasts suggest job creation in July will continue but at a slower pace, while the unemployment rate may return to 7%. The July jobs report gives a mixed view of the Canadian economy. While the unemployment rate stayed at 6.9%, the loss of 40,800 jobs indicates some weaknesses. This contradiction could lead to more market volatility in the weeks ahead. The increase in wage growth to 3.5% is significant, especially since Statistics Canada reported a rise in core inflation to 3.1% for July. This puts the Bank of Canada in a tough spot, making an interest rate cut unlikely despite the poor job figures. We expect the central bank to keep rates steady at 2.75% in its September meeting.

Currency Traders Eye Canadian Dollar

For currency traders, the Canadian dollar seems likely to weaken. The disappointing employment data should support the USD/CAD pair, which is already near 1.3760. Using options might be a good strategy to express a bearish view on the loonie, especially as it struggles to break the 1.3800 resistance level from last quarter. The notable drop in youth employment raises concerns for consumer-related sectors in the economy. This may lead to weakness in Canadian retail and discretionary stocks on the Toronto Stock Exchange. We are considering more defensive options, such as put options on consumer-focused ETFs. This situation feels reminiscent of the economic challenges faced in late 2023, as we balanced slow growth with persistent inflation. Additionally, recent weak manufacturing data from the Eurozone and China is raising global growth worries. These factors suggest we should remain cautious in the upcoming weeks. Create your live VT Markets account and start trading now.

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