Can’t get enough of economic events to trade? Well, this must be your lucky week because there’s another jobs release coming your way on Friday. Here’s a quick Forex Trading Guide for Canada’s employment report for February.
What is this report all about?
Jobs reports tend to generate a strong reaction from their respective currencies since these serve as a preview for the country’s economic performance. An improving employment situation tends to boost consumer confidence and encourages them to spend more instead of keeping their hands in their pockets. In turn, this usually spurs an increase in production, as businesses ramp up their operations to meet the pickup in demand. As a result, overall economic expansion is seen and the local currency appreciates.
On the other hand, weak employment figures lead consumers to save their hard-earned cash for a rainy day in case the jobs situation gets much worse. This could set off a downturn in consumer spending and business production, which then weigh on economic growth and the currency’s value.
How did the previous reports turn out?
Canada has seen a stronger than expected employment figure for January, as the economy added 35.4K jobs during the month, outpacing the consensus of a 4.7K increase. However, a closer look at the underlying figures reveals that most of the gains were simply in part-time hiring.
Scrolling further back shows that the Canadian labor market has previously chalked up back-to-back losses for November and December, with the economy losing 15K jobs in those two months combined. This has discouraged a lot of Canadians from pursuing their job hunt, as many have exited the labor force in the past months.
What’s expected this time?
For the month of February, Canada is expected to have added 21.3K jobs, which might be enough to bring the jobless rate down from 6.6% to 6.5%. However, some economic analysts say that Canada has yet to feel the brunt of the oil industry slump and that more layoffs could be seen in the energy sector.
On a brighter note, Canadian officials have acknowledged that improving financial conditions have helped support investments in non-energy companies so hiring in these industries could gain more traction.
How might the Canadian dollar react?
While a weaker than expected figure might lead to another round of losses for the Loonie, the selloff might not be too bad since the BOC has just confirmed that they are no longer looking to cut interest rates in the near future.
Meanwhile, a higher than expected reading could spur Loonie rallies, as this might reassure forex market watchers that the Canadian jobs market is recovering. Of course the initial reaction to the report could still be faded if the underlying components paint a completely different picture.
If you’re looking to trade the actual release, keep in mind that currency pairs other than USD/CAD might also provide good profit opportunities. If you’re banking on a strong jobs figure and Loonie strength, you could trade the Canadian currency against a much weaker one like the euro or Australian dollar. On the other hand, if the employment report disappoints, CAD/JPY could be the pair to short.
Those are just this old man’s personal forex picks though! How about you? What’s your game plan for the Canadian jobs release?