Howdy! If you’re looking to pillage some pips from the Loonie before closing shop for the week, then you better get ready, since Canada will be releasing its jobs report this Friday (Jan. 6, 1:30 pm GMT). And if you plan to trade that top-tier catalyst, then today’s Forex Preview will help you out.
What happened last time?
- Jobless rate: 6.8% vs. steady at 7.0% expected
- Net employment change: +10.7K vs. 0.0K expected, +43.9K previous
- Labor force participation rate: dropped from 65.8% to 65.6%
Economists had varying forecasts for Canada’s November employment situation. However, there was a clear consensus that the Canadian economy didn’t generate any jobs, with many forecasting job losses.
And as I noted in my Forex Preview for Canada’s November jobs report, historical trends show that Canada usually sheds jobs in October, which seems to support the pessimistic consensus. However, I also noted that seasonal adjustments calculations mean that the unadjusted numbers get bumped higher, sometimes resulting in positive numbers instead.
Anyhow, the consensus ended up being wrong because Canada reported a net gain of 10.7K jobs in October while the jobless rate improved from 7.0% to 6.8%.
However, digging deeper into the details of jobs report reveals that everything was not as awesome as it looked on the surface.
To begin with, the drop in the jobless rate was partially due to the labor force dropping from a six-month high of 65.8% to a three-month low of 65.6%, ending three consecutive months of ever improving readings for the participation rate. Sure the number of unemployed fell from 1,365.0K to 1,326.9K, but the drop in the participation rate means that many Canadian job-seekers probably got discouraged and decided to just quit the labor force.
And with regard to the net gain in jobs, that all came from part-time jobs, since full-time employment actually fell by 8.7K. This marks the second consecutive month of declines in full-time jobs.
Overall, a rather pretty picture on the surface, which is why the initial reaction was to try and buy up the Loonie across the board. However, the details didn’t look too good, so the Loonie later got some sellers after the initial tussle. Selling pressure on the Loonie was tempered a bit, though, thanks to rising oil prices at the time, courtesy of the OPEC oil cut deal being successfully concluded just a couple of days before.
What can forex traders expect this time?
- Jobless rate: uptick fom 6.8% to 6.9% expected
- Net employment change: -5.0K expected vs. +10.7K previous
For the month of December. Economists generally agree that Canada will lose around 5.0K jobs, which would be enough to cause the jobless rate to deteriorate from 6.8% to 6.9%.
Unfortunately, the comprehensive Ivey PMI would also be released on Friday, so we only have the manufacturing PMI report from Markit/RBC. And according to Markit/RBC, Canada’s manufacturing PMI reading for December climbed from 51.5 to a five-month high of 51.8. According to the PMI report, the higher reading was mainly due to new orders increasing at the fastest pace in two years. Regarding employment, the PMI report noted that there was “a sustained risein payroll numbers.”
The manufacturing sector is therefore looking good. However, the manufacturing sector only accounts for around 9% of total employment, so we’re kinda handicapped without the more comprehensive Ivey PMI report.
Anyhow, looking at the historical trends, Canada’s unadjusted employment numbers show job losses in December. But just like in November, seasonal adjustments mean that the adjusted number is always higher, with positive numbers from time to time.
As to how economists fare when it comes to forecasting the seasonally-adjusted figure, they tend to overshoot their estimates, resulting in more downside surprises and fewer upside surprises. Last year was one of those few occasions when we got an upside surprise. Although it remains to be seen if we’ll get the usual downside surprise or not.
Anyhow, just keep in mind that a better-than-expected reading normally triggers a quick Loonie rally while a downside surprise usually causes a quick Loonie selloff.
For follow-through buying or selling, forex traders usually dig a little deeper into the details of the report, namely the labor force participation rate and full-time employment. Although oil’s price action is usually the determining factor, more often than not. And you can check real-time prices of oil futures here and here.
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