Canada Unemployment Rate rises to 7.1% in August vs. 7% expected

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The Unemployment Rate in Canada rose to 7.1% in August from 6.9% in July, Statistics Canada reported on Friday. This reading came in worse than the market expectation of 7%.

Unemployment Rate in Canada rose above 7% in August.
USD/CAD trades little changed on the day at around 1.3800.

The Unemployment Rate in Canada rose to 7.1% in August from 6.9% in July, Statistics Canada reported on Friday. This reading came in worse than the market expectation of 7%.

"Employment declined by 66,000 (-0.3%) in August, largely the result of a decline in part-time work," Statistics Canada noted in its press release. Other details of the report showed that the Participation Rate edged lower to 65.1%, while the Average Hourly Earnings rose by 3.6% on a yearly basis.

Market reaction to Canada jobs data

USD/CAD dropped to a three-day low near 1.3750 in the early American session as the US Dollar (USD) came under heavy selling pressure following the disappointing employment data from the US, which showed Nonfarm Payrolls rose by only 22,000 in August. With jobs data from Canada falling short of expectations, however, USD/CAD managed to erase a large portion of its daily losses and was last seen trading at 1.3800, where it was down 0.12% on the day.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.