• The Canadian jobs report is expected to show an increase in positions after a downfall.
  • The new NAFTA deal is a tailwind for the C$ and the BOC.
  • It is almost a win-win situation for the loonie, barring a big surprise from the NFP.

Canada publishes its jobs report for September on Friday, October 5th, at 12:30 GMT. Back in August, Canada's jobs report disappointed with a drop of 51,600 positions. The plunge came after a jump of over 50,000 jobs in July. Nevertheless, the increase pushed the Unemployment Rate back to 6%, also worse than had been expected.

Expectations for September stand at a gain of 32,500 jobs. The change seems more modest than changes of above 50,000, but it is still considerable. The jobless rate carries expectations for a drop from 6% to 5.9%. The Participation Rate is forecast to remain unchanged at 65.3%. Changes in the participation impact the jobless rate.

In case there are no significant surprises in the headline figures, the composition of full-time and part-time positions can have an impact. In addition, wages play a growing role in the market reactions.

Given the substantial drop in jobs in August, a bounce in positions makes perfect sense. While the exact magnitude can be surprising, a second consecutive loss of jobs after -51.6K last time is inconceivable. There is a higher probability that the report will be upbeat.

Context: new NAFTA, rate hike, and the US jobs report

Assuming an OK report, the Canadian Dollar could move up even if the gain in positions falls short of 32,500 expected. The loonie enjoys a significant tailwind from the new trade agreement. The United States Mexico Canada Agreement (USMCA) replaces NAFTA and was hailed by the leaders of the three countries. The news sent the C$ jumping to the highest in four months.

The USMCA also cements the rate hike by the Bank of Canada. BOC Governor Stephen Poloz maintained the bullish bias and with the removal of the trade roadblock, the central bank can move forward.

It would thus take a terrible jobs report to derail the BOC and to stop the Canadian Dollar.

One thing that can stop the loonie from rising on the Canadian jobs report is the American one. The US publishes the Non-Farm Payrolls report at the exact same time. A superb NFP can send the greenback higher across the board and the C$ may be unable to withstand such a storm. 

However, if both the Canadian figures and the US ones are broadly within expectations, the loonie is likely to have the upper hand.

Conclusion

The Canadian jobs report for September is expected to show a bounce in jobs. Given the new trade deal and the intention of the BOC to hike rates in October tilt the scales in favor of the loonie. It would take very weak numbers in Canada and an excellent US NFP to push the USD/CAD higher. 

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