How long before the hawks begin to circle?

The stunningly strong November jobs data from Canada and the United States has kicked off a fresh round of speculation as to when the two countries' central banks will begin hiking their key interest rate from historic lows.

Short-term bond yields rose in both countries on the impressive payroll data, while the U.S. dollar had its strongest day since June on anticipation that the U.S. Federal Reserve might be closer to a rate increase than people realized.

"The day is nearing when the Fed will have to make good on its plans for an exit strategy," Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, told Reuters. "We're almost back to normal. The economy is lifting at a much greater rate than expected."

In Canada, data Friday indicated the economy added 79,100 jobs in November, compared to expectations of a 10,000 gain. Further, the data revealed the biggest monthly increase in private-sector payrolls, of 56,900, since January of 2008.

As impressive was news from the United States. After 21 consecutive months of recording job losses of at least 100,000 or more, the U.S. economy shed only 11,000 jobs in November. Analysts had expected a payroll reduction of 125,000 for November.

Stéfane Marion, chief economist at National Bank Financial, said job creation in the United States is now "just around the corner," and that will prompt both the Fed and Bank of Canada to begin raising their benchmark rates in the second quarter of 2010.

"For Canada, there's no need for a zero-interest rate policy in the context of its biggest trading partner starting to grow again," Mr. Marion said.

The Bank of Canada has conditionally pledged to keep its policy rate at a record low of 0.25% until the end of June 2010 in effort to ramp up economic activity, so long as inflation remained in check.

The central bank will issue its latest interest-rate statement on Tuesday, and it is expected to cite the relatively large amount of economic slack, and the impact the stronger Canadian dollar is having on exports and inflation, in leaving its policy rate unchanged.

Also, the Canadian economy grew only 0.4% in third quarter, which was well below the central bank's expected 2% gain.

"If there were not a lot of other external factors out there," most notably the Canadian dollar, "you would think the Bank of Canada would want to rethink its prognostications as to when to take the foot off the monetary policy accelerator," said Aron Gampel, deputy chief economist at Bank of Nova Scotia.

Avery Shenfeld, chief economist at CIBC World Markets, said in a note Thursday the central bank could tweak its Tuesday statement to add "a slightly more hawkish tone" by conceding to solid momentum in employment, household credit, and domestic demand.

But he warned of raising rates too early, which he argued the central bank did in 1992 and 2002 on what appeared to be robust data only to undo the hikes in subsequent months. Based on his calculations, the unemployment rate, at 8.5% in November, needs to fall another percentage point before the central bank begins to boost rates.

That won't happen, in his estimation, until 2011.

Craig Wright, chief economist at Royal Bank of Canada, said the Bank of Canada would likely keep its pledge, but he envisaged rate increases in the third and fourth quarters next year - pushing the policy rate to 1.25% in a year's time.

The payroll data "was a big step forward in the long process toward normalizing interest rates," he said. "It suggests the labour market has potentially turned the corner."