OTTAWA (Reuters) - Canada’s economy unexpectedly lost jobs in March but a huge jump in full-time positions suggested solid economic growth and bolstered expectations the central bank will raise interest rates later this year.
The “curveball” report initially knocked the Canadian dollar lower. But traders, seeing signs of strength beneath the weak headline figure, then pushed the currency to its strongest level since November 2007.
Statistics Canada reported on Friday net job losses of 1,500 in March, the first decline since September and a figure that was contrary to analyst forecasts for a gain of 26,500.
But the report showed employers hired a whopping 90,600 full-time workers in the month, offset by a slightly bigger decline in part-time jobs.
The unemployment rate dropped to 7.7 percent from 7.8 percent in February, as expected, but is still stubbornly high compared with pre-recession levels.
The report did not change expectations that the bank will keep its key interest rate on hold on Tuesday at 1 percent, but could affect the timing of its next move.
“The (central) bank should take away from this that the economy itself is on pretty decent footing when it comes to the labor market,” said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.
“The headline number, which I‘m sure will get a lot of play in the election campaign, really was the least important point of the report.”
Employment is a big theme for politicians campaigning for the May 2 federal election, especially in voter-rich Ontario where manufacturers are still struggling in the aftermath of the recession.
Conservative Prime Minister Stephen Harper is campaigning on his economic track record. Opposition parties say he has ignored the needs of middle-class Canadians, while cutting taxes for big corporations.
Housing starts beat expectations in March with a 2.8 percent rise from February to 188,800 units, Canada Mortgage and Housing Corp said in a separate report.
The once-overheated housing market appears to be stabilizing and will no longer be a main driver of economic growth, as it was until mid-2010, analysts said.
Policy makers now say business investment is crucial to keep growth momentum, and the surge in full-time positions as well as strong private sector hiring in March were hopeful signs companies are expanding and gaining confidence.
The central bank will update its outlook on growth and inflation in a quarterly report on Wednesday, following the rate announcement. Analysts will be keen to see if it signals monetary tightening on the horizon, given robust growth and high commodity prices that may pressure inflation levels.
“We do not expect that the bank will likely change the overall dovish tone or sentiment adopted in January, given the litany of risks that continue to circle the horizon,” said Stewart Hall, economist of HSBC Securities Canada in a note.
Other analysts predicted a more hawkish tone.
A Reuters poll released on Thursday showed analysts see zero chance of a rate hike by the central bank next week, though most are betting on a move in July.
Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors betting a rate increase would come slightly earlier than previously thought. The swaps now show a high probability of an increase in July, with a quarter-point hike fully priced in by September.
Wage inflation clicked higher in March with a 2.6 percent annual rate in the measure most closely watched by the bank.
Additional reporting by Chandra Ramarathnam, John McCrank, Claire Sibonney and S. John Tilak; editing by Kenneth Barry and Peter Galloway and Rob Wilson