Strong Canada job gains surprise, other data mixed

Fri Oct 9, 2009 12:25pm EDT
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By Louise Egan

OTTAWA (Reuters) - Starkly contrasting data on Friday showed Canada's jobs market giddily topping expectations in September after a dismal August trade performance, testing the Bank of Canada's resolve to hold rates unchanged through mid-2010.

Two Bank of Canada surveys also showed businesses were more upbeat in the third quarter about sales and credit but continue to postpone major investments because they expect the recovery to be very gradual.

The Canadian dollar raced to a one-year high after the jobs data, which showed 30,600 new jobs and the unemployment rate falling to 8.4 percent from 8.7 percent.

This was tempered 90 minutes later when news emerged that August's trade deficit hit a record C$1.99 billion ($1.91 billion), twice what was expected, as exports fell by 5.1 percent while imports dropped by only 2.8 percent.

"Jobs may be a plus on the morning and thus are putting a bounce in the step of the hawks, but trade numbers are vastly disappointing and that punctuates the Bank of Canada's dilemma," Scotia Capital economist Derek Holt wrote to clients.

"The domestic economy remains fairly resilient while the trade sector continues to get whacked."

The central bank must decide whether to stick with its conditional pledge to keep its target interest rate at a rock-bottom 0.25 percent through the middle of next year or follow Australia's lead in hiking them early.

"The bad news is this is going to keep that currency market looking at who's next in terms of global central banks in the tightening cycle and the Bank of Canada seems to be a favorite according to currency markets," said Craig Wright, chief economist at Royal Bank of Canada.   Continued...

<p>A man looks at a job board posted at a job fair in Toronto, April 1, 2009. REUTERS/Mark Blinch</p>