By Steve Scherer and Ismail Shakil
OTTAWA (Reuters) -The Canadian economy smashed expectations by adding a net 150,000 jobs in January, data showed on Friday, putting pressure on the Bank of Canada to reconsider a "conditional pause" to interest rate hikes announced just last month.
The jobless rate held steady at 5%, which is just a decimal point higher than the record low, Statistics Canada (Statscan) said. Analysts surveyed by Reuters had forecast a net gain of 15,000 jobs and for the unemployment rate to edge up to 5.1% in January.
Statscan revised December's net gains downward to 69,200 jobs from 104,000, previously.
Labor market tightness was one of the main reasons the central bank had raised rates on Jan. 25 to 4.5%, the highest level in 15 years, according to minutes outlining the decision released this week.
It then became the first major central bank to say it would hold off on further increases to let previous hikes sink in.
"The Bank of Canada's conditional pause on interest rates was likely done partly so that policymakers didn't feel the need to respond to any single strong data print, no matter how strong," said Andrew Grantham, a senior economist at CIBC Capital Markets.
"However, that won't stop markets reacting to today's strong data by pricing in a greater probability of further hikes, and pricing out rate cuts," he said.
Before the jobs numbers, markets had been betting that the Bank of Canada's next move would be to cut rates. After the figures were released, money markets priced in a greater probability of a rate increase instead.
When he announced a pause on rates, Governor Tiff Macklem said it was "conditional" and did not rule out further increases.
"I don't necessarily think that it's an ironclad prolonged pause. It's a conditional pause and we just have to watch the data," said Derek Holt, vice president of capital markets economics at Scotiabank, who now says a rate hike in April is more likely.
The Canadian dollar strengthened 0.7% to 1.3355 per greenback, or 74.88 U.S. cents, after the data.
January's job additions, the fifth consecutive monthly gain, were driven primarily by the core-age group of 25- to 54 year-olds and were spread across several industries, Statscan said.
"For the Bank of Canada, the strong report must make them at least a tad nervous about their freshly minted pause," said Royce Mendes, head of macro strategy at Desjardins Group, adding, "the employment data may prove to be just loud noise, provided inflation continues to ebb."
Annual inflation slowed to 6.3% in December, down from a peak of more than 8%. The central bank targets 2% annual inflation.
The average hourly wage for permanent employees rose at a slower pace in January, gaining 4.5% annually versus a 4.7% rise in December.
Employment in the goods sector increased by a net 25,400 jobs, led by construction. Service sector jobs jumped by a net 124,700, mostly in wholesale and retail trade and the healthcare and social assistance subsectors.