Forex Trading Guide: Canadian Jobs Report (Oct)

With both the US and Canada scheduled to release their jobs reports this Friday (Nov. 6, 1:30 pm GMT), I thought that now would be a good time for a Forex Trading Guide to help y’all out.

For today’s Forex Trading Guide, I’ll get you up to speed on Canada’s jobs report. I’ll then give y’all another helpful Forex Trading Guide for the US NFP report tomorrow, so be on the lookout for that.

Why is this report important?

For the newbie forex traders out there (and veteran forex traders who just want a refresher), jobs reports are of vital importance to both forex traders and policy makers because a healthy labor market generally translates to higher economic output and higher levels of consumer confidence and consumer spending. After all, you probably won’t be too happy if you’re out of a job and don’t have enough money to buy food. And businesses need employees to produce anything (machines still can’t do everything and Skynet won’t be active until 2017 or so).

Jobs reports usually have various components, but for the Canada’s jobs report, forex traders tend to focus on (1) the jobless or unemployment rate, which is pretty self-explanatory (unless you slept through your Macroeconomics class), and (2) the employment change, which is a measure of the net increase (or decrease) in employment during the previous month.

What happened last time?

  • Employment Change: 12.1K actual vs. 10.5K expected, 12.0K previous
  • Unemployment Rate: 7.1% actual vs. 6.9% expected, 7.0% previous

The jobs report for the September period was a mixed bag of nuts on the surface since the jobless rate ticked higher from 7.0% to to 7.1% when it was expected to tick lower to 6.9%, but the labor force participation rate held steady at 65.9% at least. Meanwhile, employment change printed a net increase of 12.1K jobs when only 10.5K was expected.

However, a closer look at the details of the report show that the net increase in jobs was actually due to a loss of 62.0K full-time jobs being offset by a gain of 74.0K part-time jobs. That’s pretty bad since full-time employment usually offers better security and pay, so a large decline in full-time positions will most likely have a negative impact on consumer confidence and/or consumer spending down the road.

What’s expected this time?

  • Employment Change: 9.7K expected, 12.1K previous
  • Unemployment Rate: expected to remain unchanged at 7.1%

For the October jobs report, the general consensus among economists and forex traders is that the jobless rate will hold steady at 7.1% while employment change will see a net increase of only 9.7K jobs.

Looking at related reports, the Royal Bank of Canada’s manufacturing PMI for October saw further contraction in the manufacturing sector, with the headline PMI currently at 48.0 (48.6 previous). The employment index, in particular, declined for the fourth consecutive month, but the report noted that there is evidence that “that employers have tried to limit job cuts as much as possible through initiatives like work-share arrangements, and want to retain their staff in anticipation of future growth.” In addition, the Bank of Canada also reported in their latest Business Outlook Survey that hiring intentions across all sectors “remain modest.”

Overall, it looks like Canada is set to print another net increase in jobs, albeit at a slower rate, so the consensus seems about right. But don’t forget to look at the Ivey PMI reading’s employment index for further confirmation when it comes out on Thursday (Nov. 6, 3:00 pm GMT). You can find it here.

How might the Loonie react?

Last time around, the readings were mixed on the surface, so there was no violent knee-jerk reaction. But when forex traders got a better look at the report and realized that the net increase in employment was mostly due to part-time employment while full-time jobs were gutted, they decided to dump the Loonie across the board. Seller follow-through only lasted for a couple of hours, though, probably because the Loonie was getting a lot of demand at the time due to a week-long rally in oil prices.

USD/CAD 15-minute Forex Chart

USD/CAD 15-minute Forex Chart

For the upcoming report, just remember to keep these general short-term tips in mind:

  • better-than-expected or worse-than-expected readings usually trigger an explosive knee-jerk reaction
  • if the readings are mixed, forex traders usually focus on the unemployment rate for direction
  • Canada’s jobs report will be released simultaneously with US non-farm payrolls this time, so frame a USD/CAD trade with that in mind, or just trade the crosses instead

For longer-term forex price action, make sure to take these things into consideration:

  • oil prices – they stopped the Loonie from bleeding out last time, and if you don’t understand why, you may need check our School’s lesson on How Oil Affects USD/CAD
  • the actual contents of the report – the devil’s in the details, as they say
  • overall risk sentiment – a risk-off session can easily put a cap on the high-yielding Loonie’s gains (assuming the actual readings come in better-than-expected, of course)

Well, that’s it for now. But before you go, why not share your opinion for this event in the poll or in the comments section below. Happy trading!