Rate drop expectations

Canada’s unemployment rate spiked to its highest level in three years last month, jumping to 6.8% in a development that gives impetus for the Bank of Canada to continue rapidly bringing interest rates lower.

Statistics Canada said on Friday that the jobless rate had increased by 0.3% in November, with unemployment higher than economists surveyed by Bloomberg before the announcement had expected (6.6%).

That figure dominated a release that also showed employers added 51,000 jobs last month, significantly higher than expectations of 25,000 – although 90% of those were in the public sector.

The Canadian dollar plunged in the wake of the news, with odds of an oversized 50-basis-point cut by the Bank of Canada also surging past the 75% mark.

BMO, which had previously forecast a 25-basis-point cut, signalled that it now expected the Bank of Canada to bring rates lower by 0.5% in next week’s announcement, while CIBC’s Andrew Grantham indicated in a note to investors that a 50-point cut was probably in the cards.

RBC assistant chief economist Nathan Janzen also said the news leaves the door wide open for an oversized cut on December 11.

“Details underlying the November labour market were mixed but the rise in the unemployment rate alongside a slowing in wage growth should reinforce that interest rates are higher than they need to be to keep inflation at the BoC’s inflation target,” he wrote.

“Our base-case expectation remains that the BoC will cut the overnight rate by another 50 basis points next week.”

Youth unemployment jumped to 13.9%, while annual wage growth for permanent employees slid to 3.9% in November – well below the 4.7% expected by economists, and the mildest pace since June of last year.