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Canada labour market crushes forecasts, sending loonie higher

Canadian employment grew for a fourth straight month, and the broad gains strengthen the case for the Bank of Canada to hike interest rates again later this month.

The economy added 104,000 jobs in December, while the unemployment rate fell to near a record low of 5 per cent, as youth and private-sector employment grew, Statistics Canada reported Friday in Ottawa. Economists were anticipating an increase of just 5,000 positions and a jobless rate of 5.2 per cent, according to the median estimates in a Bloomberg survey.

The data suggest Canada’s job market was still running at an unsustainable pace at the end of last year, raising questions about whether the central bank will need to raise rates even higher to cool demand.

After the jobs release, overnight swaps traders raised the odds of a 25 basis-point increase in the policy rate on Jan. 25 to nearly 90 per cent, up from about two-thirds previously. Canadian Imperial Bank of Commerce changed its forecast, calling for a hike instead of a pause.

Employment increases extended a rebound from a summer slump, and there were 130,000 more Canadians working in December than the previous employment peak in May. Strong demand for workers continues to show up in paychecks, with wage pressures still rising above 5 per cent.

“Today’s robust results support the view that the Bank of Canada will hike rates again later this month,” Douglas Porter, chief economist at Bank of Montreal, said in a report to investors. “The risk is heavily tilted to the need for the bank to ultimately do even more to quell underlying inflation pressures.”

The Canadian dollar soared, trading as high as $1.3512 per U.S. dollar, from about $1.366 before the release. The two-year bond yield initially rose, then dropped to trade at 4.016 per cent at 10:32 a.m. Ottawa time.

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