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Well, hello there, forex buddies! Are you hunting for some volatility-inducing catalysts?

Look no further since Canada is expected to release its jobs data this Friday at around 1:30 pm GMT. If you wanna trade that event, why don’t you check out this edition of my Forex Trading Guide?

What is this report all about?

To all the newbie forex traders out there, Statistics Canada releases a monthly report on the state of Canada’s labor market.

This report has a host of labor indicators, but most forex traders only focus on (1) the unemployment rate, (2) the labor force participation rate, and (3) the employment change, which is the net increase (or decrease) in the number of employed people during the reporting period.

Labor market indicators and the overall health of the labor market are important to most forex traders because they hint at the potential strength of consumer spending and the current level of consumer sentiment.

These, in turn, help to power domestic economic activity by boosting demand for goods and services, thereby compelling businesses to expand and hire more people in order to meet demand, propagating a self-sustaining cycle of growth that could lead to higher inflation levels in the long run (increasing the chance of a rate hike in the process).

What happened last time?

Last time, Statistics Canada reported that the jobless rate for the month of July remained unchanged at 6.8% for the sixth straight month as expected, but the labor force participation rate slid lower to 65.7% from 65.8%, which is bad news since it means that some people probably gave up on looking for work and decided to just leave Canada’s workforce altogether.

As for the employment change, Canada’s economy only saw a net gain of 6.6K jobs, but this was better than the expected 5.3K and more than enough to wipe out the 6.4k jobs lost back in June.

Looking closer at the report, full-time employment actually decreased by 17.3K, and the net increase in employment was due to a 23.9K increase in part-time jobs.

While a net increase in jobs is good, the fact that full-time employment dropped is a bad thing since full-time jobs generally and provide more pay and security than part-time jobs.

What’s expected this time?

For the month of August, economists and forex traders are expecting the jobless rate to remain steady at 6.8% while the net change in employment is expected to drop by around 5K.

That could certainly be the case, at least in the manufacturing sector, since Markit’s Canadian PMI report for August was hinting at another round of dropping employment levels due to the “non-replacement of voluntary employee departures,” which essentially means that manufacturing companies aren’t hiring replacements for people who quit.

Also, note that the net increase in employment for July was due to an increase in part-time employment, and part-timers are more vulnerable to getting laid off when the going gets tough.

How might USD/CAD react?

The mixed yet slightly positive readings for Canada’s jobs data from last time and the less-than-expected figure for U.S. non-farm payrolls yielded a different reaction, with the Greenback making some gains at the expense of the Loonie.

USD/CAD 1-hour Forex Chart
USD/CAD 1-hour Forex Chart

One explanation for this strange reaction is that demand for the Loonie was weak due to declining oil prices during the week, which meant that most forex traders were more focused on the U.S. jobs data because it was being hyped as a make-or-break data point for a potential September rate hike.

Forex - Brent Crude Oil 1-hour Chart
Brent Crude Oil 1-hour Chart

This sounds like a plausible explanation since the Greenback’s strength was only a knee-jerk reaction, as confusion on whether or not July’s non-farm payrolls figure would affect a potential September rate hike began to spread among forex traders, convincing some of them to abandon the Greenback and load up on the Loonie instead.

Oh, there was also some buyer follow-through for the Loonie, but I think it had more to do with a later oil price rally.

My point with all these is that forex traders usually have an initial, knee-jerk reaction to the data, depending on how they are doing to the previous readings and whether they meet the market’s expectations or not. Moreover, oil prices and simultaneously released data have an effect, too.

And on that note, just remember that the upcoming employment change reading is expected to deteriorate. Also note that oil prices have been declining recently after staging a three-day rally, dampening demand for the Loonie in the process.

Another factor weighing in on the Loonie is the fact that Canada is now technically in a recession, although there’s still some hope since GDP grew by 0.5% in June. Good luck and happy trading!