Forex Preview: Canada’s Jobs Report (Feb)

Hey there, forex buddies! If you’re looking for a likely catalyst for the Loonie once the smoke from the BOC’s monetary policy decision clears, then your best bet is Canada’s jobs report that’s slated for release this Friday (March 11, 1:30 pm GMT).

Oh, for the forex newbies out there, Canada’s monthly jobs report presents a comprehensive view on the current state of Canada’s labor market. And a healthy labor market generally translates to stronger consumer spending, and thus, a more robust economy.

In addition, the details of the jobs report show hiring (and firing) trends that can help both policy makers and forex traders alike in determining if Canada is indeed shifting away from the resources sector, as well as providing clues as to whether or not oil-dependent provinces like Alberta are beginning to see signs of recovery.

What happened last time?

  • Jobless rate: ticked higher to 7.2% vs. steady at 7.1% expected
  • Net employment change: -5.7K vs. +5.2K expected, +22.8K previous
  • Labor force participation rate: steady at 65.9%

The jobs report for January was a disaster. Okay, I’m exaggerating a bit, but it was pretty bad because forex traders were expecting a net increase of 5.2K jobs but got a loss of 5.7K jobs instead. And the unexpected loss in jobs was enough to push the jobless rate higher from 7.1% to 7.2%, which is the highest since December 2013.

On a slightly more upbeat note, the labor force participation rate held steady at 65.9%. Also, the details of the jobs report showed that the net loss in jobs was due to a loss of 11.3K part-time jobs, but this was partially offset by a net gain of 5.6K full-time jobs. In addition, the service sector was still pretty robust, adding 19.7K jobs in February (+23.1K previous).

On a more downbeat note, the shedding of jobs in the construction (-5.4K vs. -2.8K previous) and agricultural (-13.7K vs. -7.9K previous) sectors accelerated while manufacturing lost 11.0K jobs after contributing 6.1K jobs previously.

Moreover, oil-rich Alberta reported a loss of 10.0K jobs, which pushed the jobless rate for that province to 7.4%, which is the highest reading since February 1996 and implies continued slowdown in that province that will likely drag down the broader Canadian economy. After all, Alberta “has been the fastest-growing province” that helped to propel Canada’s economy forward… before the Great Oil Slumps of 2014 and 2015, that is.

Forex traders were clearly very disappointed with both the headline readings and the details of the report, which is why they sold the Loonie pretty hard across the board. It also helped that oil was on the back foot at the time.

USD/CAD 1-hour Forex Chart

USD/CAD 15-Minute Forex Chart

What is expected this time?

  • Jobless rate: remain unchanged at 7.2% expected
  • Net employment change: +10.0K expected vs. -5.7K previous

For the upcoming report, the general consensus among forex traders is that Canada’s economy will add 10.0K jobs while the jobless rate is expected to remain steadfast at 7.2%.

Looking at some of the available leading indicators, the Markit/RBC manufacturing PMI report for the February period printed an uptick from 49.3 to 49.4, which means that the manufacturing sector is still contracting albeit at a slightly slower pace. Regarding job creation, commentary from the report noted that “Payroll numbers dropped again in February and the rate of job shedding accelerated slightly from that recorded at the start of 2016.” The report also noted that there was “sustained job shedding” in Alberta, British Columbia, and Quebec, but these losses were partially offset by higher employment mainly in Ontario.

Moving on, the more comprehensive Ivey PMI reported a drastic drop from 66.0 to 53.4 in February, with the employment index posting a drop from 55.1 to 50.3, which is just above the 50.0 neutral level and means that job creation stagnated a bit. Unfortunately, there’s no breakdown for specific sectors.

Finally, the number of housing starts in February was 198,880 units, which is a bit lower than the 199,107 units reported in January. The lower number of housing starts may translate to lower job gains for the construction industry.

In summary, the manufacturing sector is expected to subtract from job gains again and the same can probably be said for the construction industry. The Ivey PMI also reported that job creation eased in February, but it still remains to be seen if the expected job loss from the construction and manufacturing sectors will be offset by the historically robust and labor intensive service sector. Overall, the leading indicators seem to be more skewed towards a possible downside surprise.