Canadian jobs report: Will slower jobs losses extend CAD's climb? Two distractions to be aware of

Everything is relative – a change of 100,000 in Canadian jobs used to be considered massive in the BC – before coronavirus – era. And now, shedding 500,000 positions in May would be seen as a considerable relief after April's vanish of nearly two million.

Canada has suffered from the coronavirus outbreak like any other western country but has been praised for its successful schemes to support workers. Alongside support from Ottawa, the gradual reopening of provinces has also probably contributed to the slower loss of jobs. 

The Bank of Canada seemed more optimistic about the economic situation of late. Outgoing governor Stephen Poloz said that the economy is doing better than many think, while his successor Tiff Macklem presided over the BOC's decision to scale back market operations. 

The Unemployment Rate is set to continue rising, moving from 13% – already worse than levels recorded in the financial crisis – to 15%. It is essential to note that ranges of economists' estimates have widened amid the quick financial shock and figures may surprise to either direction.

The jobless rate heavily depends on the participation rate – how may people take part in the workforce. Back in April, participation sharply dropped from averages above 65% to 59.8%, thus skewing the unemployment rate to the downside.

An increase in the jobless rate that comes on top of a recovery in participation would be seen as a positive development. 

USD/CAD reaction

The Canadian dollar has been on the rise amid optimism from the central bank and hope for a quick reopening. The positive trend means that in case Canada's job figures meet expectations, the loonie may edge higher, extending its trend. 

A significant downside miss, such as job losses closer to one million or an unemployment rate that nears 20% may weigh on the C$. A substantial beat, such as a drop in the jobless rate or fewer than 300,000 positions lost may send it higher. 

It is essential to note that the reaction in USD/CAD may be distorted by the US Non-Farm Payrolls report published at the same time. Figures leading to the event have been too good to be true, causing more confusion and implying more volatility in the dollar.

Another factor to consider is oil. The price of Canada's critical export has been choppy of late, as OPEC+ members continue deliberating further production cuts. Any headlines flying around Friday at 12:30 GMT – when the labor figures are due out – would also shake USD/CAD. 

Conclusion

Canada is expected to report a softer blow to its labor market in May amid gradual reopening and government support. The trend is favorable for the loonie in case of figures meet estimates, yet the actual outcome may vary significantly. The US NFP and oil prices may distort the reaction in USD/CAD.