USDCAD: A wage issue? (Strategy Views from Credit Agricole)

A week after the US, Statistics Canada is due to release its January labour report
today. While the bar has been put quite high to come just close to last month’s
stellar jobs gains in the US, attention could actually focus more on another part of
the report: wages growth. Canada has indeed come at odds with the US on that
front, as Canadian wages have just accelerated to their fastest pace in years (at
5.7% YoY in December) whereas US average earnings have gradually slowed
down over the past 18 months or so. Nevertheless, according to the latest BoC
minutes, Canadian policymakers did not sound too concerned about such
developments, highlighting the lagging nature of wages and the absorbing capacity
of Canadian firms. The bank still noted that it could fuel inflationary pressures if
real wages growth continues to outpace productivity in the long run. Yet, in the
short term, Canadian underlying inflation and whether the trend of a gradual
slowdown could resume should be of greater importance, while we still see the
BoC moving to ease later than the Fed, just like in the previous three easing cycles.
With money markets largely embracing such a view as well, this would thus only
cement a very gradual downtrend in USD/CAD as our forecast for Q324 stands
at 1.30.