News & Analysis

Amid the dovish pushback from G10 central banks this week and the broad rally in bond markets, front-end US Treasury yields have remained fairly resilient. This theme was extended in early trading today, helping the dollar gain ground ahead of October’s payroll data. The markets’ preconceptions for a strong payrolls report were vindicated with the release, which saw not only an upwards surprise in net employment in October, but a positive revision to September’s disappointing reading as well. The US labour market added 531,000 jobs in October, up from September’s upwardly revised 312k reading, to leave overall employment just 4.2m from pre-pandemic levels.

With the Fed’s forward guidance on rates largely linked to the recovery in the labour market, today’s positive employment data resulted in the US 2-year yield climbing over 2bps on the day before moderating somewhat.

Widening front-end yield spreads drove the reaction in FX markets, with the dollar going bid across the G10 space. Post-pandemic highs in front-end nominal spreads between the US and Germany pushed EURUSD to a fresh 15-month low, while the pound continues to plummet following yesterday’s dovish surprise from the Bank of England.

We had warned of asymmetric risk heading into today’s payrolls release, given the slip in September’s data due to the early initial surveying window. Not only did we expect an upwards revision to last month’s data for this reason, but also expected October’s net employment figure to come in strong given the tailwinds from improving Covid conditions. Looking ahead, today’s payroll release will likely keep the dollar elevated, until improving economic conditions and more hawkish central bank communications return towards the end of the year.


Continued strength in Canada’s labour market meant CAD bucked the G10 trend

While Canada’s net employment change undershot expectations by 10.4k with a print of 31.2k, today’s LFS largely met our expectations. That is, strength in Canada’s labour market is now becoming more nuanced than just net employment gains with overall employment now back above pre-pandemic levels. Instead, underlying indicators of limited labour market slack are starting to flash; total hours jumped a dramatic 1% in October to sit just 0.6% below pre-pandemic levels, wage pressures are appearing and continued rotation from part-time to full-time employment.

The continued strength in Canada’s job market will soon begin to spill over into higher wages, which is naturally a lagged indicator of a tight labour market.

As long as net employment continues to track in positive territory, albeit at a slower rate than the 67.76k year-to-date average, progress in the labour market will continue to support the idea of BoC tightening early next year. Today’s data release confirms our view that the BoC will conduct rate lift-off at April’s meeting, just prior to the Federal Reserve.


USDCAD bucks the broader G10 trend as Canadian labour market developments keep apace with the US 


Author: Simon Harvey, FX Market Analyst



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