Forex Preview: Canada’s Jobs Report (Nov.)

How y’all doing, forex buddies? If you’re looking for a likely catalyst for the Loonie after the OPEC meeting, then just know that Canada will be releasing its jobs report this Friday (Dec. 2, 1:30 pm GMT). And if you need to get up to speed on what happened last time and what economists are expecting this time, then today’s write-up will help you out.

What happened last time?

  • Jobless rate: steady at 7.0% as expected
  • Net employment change: +43.9K vs. -10.0K expected, +67.2K previous
  • Labor force participation rate: ticked higher from 65.7% to 65.8%

I wrote in an earlier article that with regard to Canada’s October jobs report, economists “seem to have streaks when it comes to forecasting.” I also noted that “in the past few years, economists have been underestimating their forecasts, which is why the actual [seasonally-adjusted] readings has been coming in better-than-expected.”

Well, it turns out that economists underestimated their seasonally-adjusted forecast again, since net employment in October came in at +43.9K. This is obviously better than the expected net loss of 10K jobs.

Canada Oct. Jobs Report: Expected vs. Actual

True, the headline number looks awesome, but delving into the details does reveal some weakness. To be more specific, full-time employment actually suffered a net loss of 23.1K jobs, which is the first loss in full-time jobs after two straight months of increases. The fall in full-time jobs was offset by the 67.1K increase in part-time jobs, though, which is why net employment still printed an increase.

Looking at the other indicators, the jobless rate held steady at 7.0% for the third month in a row. And it’s apparently a healthy sign, since the labor force actually increased by 149.3K to 19,525.7K, which then caused the labor force participation rate actually ticked higher from 65.7% to a six-month high of 65.8%. This means that despite the influx of workers who joined (or rejoined) the labor force, the Canadian economy was able to absorb them, which is good. However, the fact that all of the job gains were part-time jobs removes some of the shine from the Canadian economy.

Overall, the jobs report was pretty positive, with the exception of the loss of full-time jobs of course. As such, the initial reaction was to try and buy up the Loonie. Unfortunately for Loonie bulls, the release of Canada’s jobs report coincided with news that Saudi Arabia and Iran were butting heads again, which sent oil prices tumbling very hard. In the process, the Loonie also got weakened and lost ground to its forex rivals.

Also, the U.S. presidential election, particularly the increasing possibility of a Trump victory, was weighing in on the Loonie’s price action at the time. Back then, the gospel being preached by the mainstream media, as well as the economists being invited by the mainstream media, was that a Trump presidency is gonna be horrible not just for the U.S. economy, but for the entire planet as well. This is problematic for Canada because a very large chunk of Canadian exports (mainly oil and timber) make their way to the U.S. And given the idea that Trump is supposedly gonna ruin the U.S. economy, as well as Trump’s stance on NAFTA, many market players thought that Canada was in hot water, which eroded demand for the Loonie.

USD/CAD: 15-Minute Forex Chart

USD/CAD: 15-Minute Forex Chart

Still, Loonie bulls kept trying to buy up the Loonie, though, and they finally managed to regain lost ground. And things only got better for the Loonie on Monday, when FBI Director Comey cleared Clinton from the email scandal yet again, which boosted Clinton’s poll numbers. Of course, we now know that Trump ended up winning and that economists are now saying that a Trump presidency is gonna be great, at least for the U.S. economy.

What can forex traders expect this time?

  • Jobless rate: steady at 7.0% expected
  • Net employment change: 0.0K expected vs. +43.9K previous

For the employment situation in November, economists have varying forecasts. Economists at Toronto-Dominion (TD) Bank, for example, expect a net loss of 10K jobs. Economists from the National Bank of Canada, meanwhile, are expecting a loss of 27.0K jobs. The consensus reading, though, is that the Canadian economy didn’t generate any jobs in November, so that’s a big, fat zero for net employment. This, in turn, is expected keep Canada’s jobless rate steady at 7.0% for the fourth consecutive month.

Unfortunately, there are no leading economic indicators yet, since the comprehensive Ivey PMI is scheduled for release next week.

But looking at historical trends, Canada usually loses jobs in November. However, seasonal adjustments mean that the reading gets bumped higher.

Canada Nov. Jobs Report: Unadjusted vs. Adjusted

Still, that doesn’t immediately mean that the actual, seasonally-adjusted reading will beat expectations. In fact, economists have been overshooting their forecasts in the last couple of years, resulting in misses, as you can see in the table below.

Canada Nov. Jobs Report: Expected vs. Actual

Going back to TD Bank’s forecast of a net loss of 10K jobs, the bank’s economists do have a point in expecting a downside surprise. You see, the seasonally-adjusted jobs growth in November has historically been underpinned by growth in part-time jobs. And, as TD Bank’s economists noted, “the recent robust pace of part-time job growth … should limit any further gains in part-time employment.”

Anyhow, just keep in mind that if the actual reading does beat expectations, then forex traders usually buy up the Loonie as a knee-jerk reaction. On the flip side, a miss usually triggers a quick selloff. For follow-through buying or selling, traders usually look to oil prices, so keep an eye on that, too.


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