Canada: Wage strength tempers BoC cut hopes – TD Securities

TD Securities strategists Robert Both and Emma Lawrence note that Canadian labour markets showed a modest rebound in March, with 14k jobs added and the unemployment rate steady at 6.7%. Stronger wage growth for permanent workers and higher hours worked give the data a hawkish tilt, but softer core inflation and other wage indicators mean the report is unlikely to significantly alter Bank of Canada (BoC) policy expectations or front-end rate valuations.

Labour rebound but BoC reaction muted

"Stronger wage growth gave a hawkish tone to the report, but we do not expect it to weigh too heavily on the next BoC decision given the recent deceleration across core inflation measures and the softer performance across other wage indicators."

"Softer core inflation momentum should also make it easier to look through the acceleration for LFS wage growth."

"However, stronger wage growth will be more difficult to look through if higher energy prices start spilling over into broader inflation pressures."

"Markets have remained highly focused on the geopolitical backdrop and energy prices as a driver for the near-term BoC path, so the reaction (or rather lack thereof) isn’t surprising despite Macklem's comment that the labour market remains soft."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)