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How y’all doing, forex friends! Canada will be releasing its July Jobs Report as this Friday at 12:30 pm GMT. So if you’re looking for a chance to pillage some quick pips from the Loonie before calling it a week, then heads up since this top-tier report usually does a good job of infusing the Loonie with a burst of volatility.

What happened last time?

  • Net employment change: +31.8K vs. +17.5K to +24.0K expected, -7.5K previous
  • Jobless rate: 6.0% vs. steady at 5.8% expected
  • Labor force participation rate: 65.5% vs. steady at 65.3% expected
  • Average hourly wage rate m/m: -0.30% vs. -0.44% previous
  • Average hourly wage rate y/y: +3.63% vs. +3.94% previous

If you can still remember my Event Preview for Canada’s June jobs report, I pointed out back then that jobs growth usually slows down in June but economists tend to be too pessimistic, resulting in more upside surprises.

As it turns out, the June jobs report respected the historical norm that economists are too pessimistic since the Canadian economy generated 31.8K jobs, much more than the forecast range of between +17.5K to +24.0K jobs. And of those 31.8K jobs, 9.1K were full-time jobs, which is a weak increase but better than last month’s 31K loss.

Despite the stronger-than-expected jobs growth, the jobless rate deteriorated from 5.8% to 6.0%, which is an eight-month high.

However, the higher jobless rate was actually due to the labor force participation rate jumping from 65.3% to a three-month high of 65.5%, so the higher jobless rate wasn’t really that bad.

Unfortunately, wage growth did disappoint since the average hourly wage rate fell by 0.30% month-on-month (-0.44% previous), marking the second month of falling wages. Year-on-year, the average hourly wage rate also took a hit, increasing only by 3.63% (+3.94% previous), putting an end to three consecutive months of accelerating annual wage growth.

Overall, Canada’s June jobs report was mixed. Net employment did print an upside surprise, though, so the Loonie’s knee-jerk reaction was to jump higher across the board.

However, bears quickly attacked, likely because Canada’s trade report, which was released simultaneously with the jobs report, showed that Canada’s trade deficit widened.

Overlay of Inverted CAD Pairs: 15-Minute Forex Chart
Overlay of Inverted CAD Pairs: 15-Minute Forex Chart

Moreover, the Loonie was already feeling some bearish pressure at the time because Trump fired the opening shot in the trade war between the U.S. and China just a few hours before Canada’s jobs report was released.

Selling pressure eventually abated, though, likely because of rising oil prices at the time.

What’s expected this time?

  • Net employment change: +17.5K expected vs. +31.8K previous
  • Jobless rate: 5.9% vs. 6.0% previous
  • Labor force participation rate: 65.4% vs. 65.5% previous

For this Friday’s jobs report, most economists forecast that around 17.5K jobs were generated, which is a weaker reading compared to June’s +31.8K.

As for the other labor indicators, the consensus is that the jobless rate will improve from 6.0% to 5.9%, but that’s partly because economists also expect the labor force participation rate to ease from 65.5% to 65.4%.

So, do the leading labor indicators offer any clues?

  • Markit’s manufacturing PMI report noted that “Canadian manufacturers recorded robust rises in … employment during July.” However, the Markit didn’t really elaborate on that.
  • The comprehensive Ivey PMI report’s employment index dropped from 59.3 to 55.3. The reading is still above the 50.0 neutral level, which means that employment still grew in July, albeit at weaker pace compared to jobs growth in June.

What about historical tendencies? Do they offer additional insights?

Well, jobs growth in July has been historically weaker compared to the June period, which supports the consensus that jobs growth weakened in July.

As to how economists have fared with their guesstimated, well, economists apparently have a strong tendency to be too optimistic since they often overshoot their guesstimates, which has resulted in a lot of downside surprises over the years.

To summarize, most economists think that only +17.5K jobs were generated in July, so there is a consensus that jobs growth slowed.

And while the available leading indicators are mixed, the comprehensive Ivey PMI report’s employment index did deteriorate sharply (but is still above the 50.0 level), which supports the consensus that jobs growth slowed in July.

Historical trends also support the consensus since jobs growth in July has been weaker (or negative) in 9 of the last 11 years.

However, historical trend also show that economists have a tendency to be too optimistic with their guesstimates, given that there are plenty of downside surprises over the years. And that skews probability more towards a possible downside surprise.

But as always, just be reminded that we’re playing with probabilities here, so there’s always a chance that jobs growth may surprise to the upside instead.

And as with all economic reports, an upside surprise (for jobs growth in this case) is considered good for the currency while a downside surprise is considered bearish.

As for follow-through buying or selling, that usually depends on oil prices, so make sure to keep an eye on oil prices. And if you didn’t know, you can check real-time prices of oil futures here and here.