Forex Preview: Canada’s Jobs Report (Aug)

How y’all doing, forex buddies? The BOC Statement isn’t the only top-tier event for the Loonie this week. And if you’re looking for a likely catalyst that will allow you to pillage some quick pips from the Loonie, then look no further since Canada will be releasing its jobs report this Friday (Sept. 9, 12:30 pm GMT).

What happened last time?

  • Jobless rate: ticked higher to 6.9% as expected vs. 6.8% previous
  • Net employment change: -31.2K vs. +10.2K expected, -0.7K previous
  • Labor force participation rate: ticked lower from 65.5% to 65.4%

The jobs report for the July period looked awful on the surface because net employment went in the opposite direction, decreasing by 31.2K instead of increasing by 10.2K as expected. This marked the second month of job shedding and also happens to the biggest net loss in jobs since November 2015.

The details of the jobs report were also pretty bad. For instance, the net loss in jobs was revealed to have been due to the loss of 71.4K full-time jobs, which was partially offset by the 40.2K net increase in part-time jobs. This is the largest of full-time jobs in 58-months. And this is a bad blow to the Canadian economy since full-time jobs tend to pay more and offer more security, so the losses may negatively affect consumer sentiment and spending down the road.

Moving on the jobless rate ticked higher from 6.8% to 6.9%. This uptick was expected. However, the labor force participation rate also ticked lower to 65.4%, a low not seen since November 1999.

The decline in the participation rate was due to the labor force shrinking from 19,380.8K to 19,368.0K while the working-age population grew. At the same time, the number of unemployed people increased from 1,326.3K to 1,344.8K.

If we put all those numbers together, then we come to the conclusions that Canadians are getting discouraged from joining the labor force and that the uptick in the jobless rate was due to the job shedding. And both conclusions are obviously bad signs for the Canadian economy.

Overall, Canada’s July jobs report was pretty horrible, so it’s no wonder why the Loonie weakened across the board. It also probably helped (the Loonie bears) that Canada’s trade report for June was released together with the jobs report, since that was pretty bad as well, given that Canada’s trade deficit widened from $3,504.2 million to $3,632.4 million, a record high since records began in the 1970’s.

USD/CAD: 15-Minute Forex Chart

USD/CAD: 15-Minute Forex Chart

What can forex traders expect this time?

  • Jobless rate: expected to hold steady at 6.9%
  • Net employment change: +14.0K expected vs. -31.2K previous

For the month of August, the consensus among economists is that Canada’s economy will generate a net increase of 14.0K jobs. The jobless rate, meanwhile, is expected to hold steady at 6.9%.

Looking at the available leading labor indicators, the headline reading for the comprehensive Ivey PMI fell from 57.0 to 52.3. The Ivey employment index slumped even harder, plunging from a seven-month high of 59.5 to a 17-month low of 46.9. Also note that the employment index is below the 50.0 stagnation level, which means that jobs were shed in August.

Moving on, Markit’s manufacturing PMI reading also deteriorated, albeit at a less pronounced pace, falling from 51.9 to 51.1. Commentary on payroll numbers noted that employment continued to rise, “but the latest expansion was the slowest since March.”

To sum it up, Markit is saying that jobs growth in the manufacturing sector slowed while Ivey is saying that there was a net decline in employment numbers across all Canadian industries. The two available leading labor indicators are therefore hinting at a potential downside surprise.

Do note, however, that seasonal adjustments tend to give employment a boost.

August Jobs Report: Unadjusted vs. Adjusted

In addition, the actual reading for employment change tend to turn out better-than-expected.

August Jobs Report: Expected vs. Actual

There’s therefore a chance that the actual seasonally-adjusted reading could also come in better-than-expected.

Also note that the Loonie tends to strengthen if the readings are better-than-expected, with focus on the reading for net employment change. Conversely, disappointing readings usually cause a quick Loonie selloff. For follow-through buying or selling, however, forex traders usually turn to oil prices.

 


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