Canadian Jobs Preview: Lonely loonie needs robust figures to stay afloat, three scenarios

• Economists expect Canada to post a modest job gain of 10,000 for February.
• The Canadian dollar is vulnerable amid the fallout from the coronavirus outbreak.
• Strong figures are needed to keep the C$ from falling.

When you've got nothing, you've got nothing to lose – goes Bob Dylan's song – but Canada does have something to lose. The labor market is looking good and a high-interest rate by the Bank of Canada – even after this week's cut. Without a strong jobs report, expectations for further reductions may push the loonie lower. 

Back in January, Canada reported an increase of 34,500 jobs, beating expectations. While employment figures are choppy in the North American nation, they have generally been upbeat since early 2019 onwards.

The Unemployment Rate stood at 5.5%. a relatively low level. The long-term trend is positive, as the chart shows. 

An increase of 10,000 positions is on the cards for February and the jobless rate is forecast to edge up to 5.6%. While the bar is low for an upside surprise – it may not be enough for the loonie.

The coronavirus disease is spreading around the world and governments' attempts to stop its spread are causing economic disruption. Central banks are cutting rates in an effort to do whatever they can – even though their impact is limited. Lower rates encourage spending, but the problem is not demand but rather supply.

Even if the BOC prefers applying that logic, it would be forced to act as evidence mounts about the economic damage. A critical figure is this jobs report which may only slow down the pace of cuts. The global trend is negative and Canada is not immune to the virus. 

Taking this positioning into account, here are three scenarios:

Three scenarios for CAD

1) Within expectations: An increase of up to 20,000 jobs would be considered meeting early estimates. In this base case scenario, the Canadian dollar would retreat as it would be insufficient to stop the rate cut.

2) Above expectations: An advance of over 20,000 jobs would already keep the Canadian dollar bid and perhaps postpone the next reduction of borrowing costs. If Canada gained in February more than 35,000 posts – beating January's increase – it would already send the C$ soaring. However, such a jump in jobs is highly unlikely. 

3) Below expectations: If Canada lost jobs in February, it would send the loonie significantly lower as a soft figure would exacerbate the C$'s already delicate position. 

It is essential to note that the Canadian labor market figures are released on Friday, March 6, at 13:30 GMT – at the same time as the US Non-Farm Payrolls. Therefore, to see the true impact of Canada's figures, it would be wiser to avoid the dollar and to trade CAD against other currencies such as the euro, pound, or yen.

Conclusion

Canada's jobs report for February is released amid the coronavirus crisis and finds a vulnerable Canadian dollar. The BOC's trend is to cut interest rates, and the employment statistics may either accelerate or slow this move. Robust figures may be needed to push it higher.