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The jobs market continues to defy expectations.
The Canadian dollar has steadily strengthened on data showing the economy unexpectedly added 8.2K jobs in December, defying consensus expectations for jobs to have been lost in the month.
Despite the figure being well below November's 53.6K, it was nevertheless another positive surprise, and it's the surprise factor that matters for currencies.
"The economy again generated a positive number of jobs last month, continuing a four-month winning streak for a labour market that many—including myself—had discounted last year," says Karl Schamotta, a currency analyst at Corpay.
The Canadian dollar softened on the initial release, perhaps tracking the reaction of its cousin below the Southern border, which initially lost ground in the wake of the U.S. jobs report.
But both currencies recovered in tandem as traders latched onto the positives in the North American job market.
The pound to Canadian dollar exchange rate (GBP/CAD) now registers a loss on the day at 1.8690, EUR/CAD eases to 1.6156 and USD/CAD rises to 1.3883.
Despite the unexpected strength in the employment report, Canada's unemployment rate climbed to 6.8%. However, this apparent contradiction was driven by a notable increase in the labour force participation rate, to 65.4% from 65.1%.
Traders tend to be more sanguine when unemployment rises because more new job hunters are entering the market and not because people are being let go.
Bigger picture, is this jobs report a game-changer for the CAD?
We don't think so. Why? Because the data needed to materially shift the dial on what the Bank of Canada will do to interest rates in response to shifts in the economy.
"The Canadian dollar is trading on a slightly firmer basis, but gains look limited as markets fail to endorse the prospect of a rate hike from the Bank of Canada later this year," says Schamotta.
He explains that after a brief burst of speculation last month that the Bank would raise rates in the coming months (which bolstered CAD), swap markets have moved back toward expecting a hike in 2027.
Expect the CAD to start rallying more sustainably when the data allows bets for a rate hike to firm up.