OTTAWA/TORONTO - Expectations that Canada's central bank will boost interest rates later this month for the third time since July surged on Friday as the government reported jobs data significantly above analysts' expectations.
Statistics Canada on Friday reported 78,600 new positions in December, smashing analysts' expectations of a modest 1,000 jobs gain. The jobless rate dipped to a 41-year low of 5.7 per cent.
"It's a spectacular year in terms of employment," said Stefane Marion, chief economist, at National Bank Financial. "I think there's a rate hike in January. You're either data-dependant or you're not."
Marion was one of five economists or strategists who told Reuters that they either expect a hike at the next Bank of Canada rate-setting meeting on Jan. 17, or that prospects for an increase have increased.
Money market data showed that the chances of a rate increase this month have nearly doubled to 65 per cent.
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The Canadian dollar quickly jumped on the news, trading as high as $1.2355 to the U.S. dollar, up from $1.2505, before the data release. Canada's 2-year yield surged to 1.786 per cent, its highest rate since June 2011.
The central bank has said that it would be guided by incoming data and that it was increasingly confident the economy would need less stimulus over time. It raised rates for the first time in seven years in July and then again in September. Its benchmark interest rate sits at 1 per cent.
"Today's figures should be massive catalysts for the Canadian dollar" said Nick Exarhos, a senior economist at CIBC Capital Markets, who also expects the central bank to raise rates this month and said the numbers could help push up short-term interest rates in Canada.
Part-time employment in December jumped by 54,900 jobs, while 23,700 full-time positions were added. On a year-over-year basis, employment increased by 422,500, or 2.3 per cent, the most since November 2007.
Separately, Statscan said Canada's trade deficit grew to $2.54 billion in November from $1.55 billion in October as imports posted their biggest surge in more than eight years.
The central bank has long fretted about the export sector, which did well in November as shipments of goods rose by 3.7 per cent, the most in a year.
But this was overshadowed by a 5.8 per cent increase in imports, the most since a 7.8 per cent leap seen in July 2009.