Forex Preview: Canada's Jobs Report (Apr)

How y’all doing, forex friends? Canada will be releasing its jobs report this Friday (May 6, 12:30 pm GMT), so if you’re looking to grab some quick pips from Loonie pairs before calling it a week, then this event is your best bet. And it just so happens that I have a Forex Preview for it.

What happened last time?

• Jobless rate: dropped to 7.1% vs. steady at 7.3% expected
• Net employment change: +40.6K vs. +10.0K expected, -2.3K previous
• Labor force participation rate: steady at 65.9%

I concluded my previous Forex Preview for Canada’s March jobs report by saying that “the available leading indicators and reports seem to support job gains in March.” And boy did we see job gains because Canada’s economy saw a net increase of 40.6K jobs, which is significantly better than the expected net increase of 10.0K jobs and also breaks two consecutive months of job losses.

Better still, the net increase in jobs was due mostly to a relatively large increase in full-time jobs, with full-time employment contributing around 35.3K jobs, which is great because full-time jobs generally offer better job security and pay more.

Furthermore, the bigger-than-expected net increase in jobs was enough to push the jobless rate lower from 7.3% to 7.1%, finally breaking the two-month climb in the jobless rate. And the drop in the jobless rate is healthy to boot since the labor force participation rate held steady at 65.9%.

The details of the March jobs report were also pretty upbeat since the 74.7K net increase in jobs from the service sector was easily able to offset 31.8K jobs lost by the manufacturing sector, as well as the 5.5K and 2.1K jobs that were respectively lost by the construction and resources sector.

Also, the job gains in the services were not all low-income jobs since the number of people employed in the professional, scientific and technical services industry, which is a higher-paying industry (legal services, management and accounting services, etc.), increased from 1,387.6K to 1,399.8K. The number of people employed by the health care and social assistance industry also increased from 2,322.8K to 2,347.7K. In addition, the employment situation in oil-rich Alberta saw some noticeable improvements since Alberta’s jobless rate dropped from 7.9% to 7.1%, with full-time employment increasing by 14.5K to 1,883.5K.

Overall, Canada’s March jobs report was pretty solid, so Forex traders responded by buying up the Loonie pretty much across the board, as you can see on the chart below.

USD/CAD: 15-minute Forex Chart

And for those of you who are wondering why the Loonie was steadily winning out against its forex rivals before the jobs report was released, that was because oil was rallying at the time. But you can clearly see that price action on the Loonie pairs accelerated when the jobs report was released. USD/CAD, for example, dropped about 50 pips lower immediately after the jobs report was released and then went an extra 50 pips lower within three hours after that before trading sideways for the rest of the day.

What can forex traders expect this time?

• Jobless rate: tick higher to 7.2% expected vs. 7.1% previous
• Net employment change: +2.0K expected vs. +40.6K previous

For Canada’s employment situation in April, the consensus among market analysts is that Canada’s economy will only see a net increase of 2.0K jobs while the jobless rate is expected to tick lower to 7.2%.

Most unfortunately, the comprehensive Ivey PMI report will be released on the same day as Canada’s jobs report (boohoo!), so we only got the Markit/RBC manufacturing PMI report as our real leading labor indicator. And according to the Markit/RBC manufacturing PMI report, conditions in Canada’s manufacturing sector improved because the PMI reading climbed to 52.2 (51.5 previous), which marks the second consecutive month that the PMI reading has been above the 50.0 stagnation level and also happens to be the strongest reading since December 2014.

Commentary from the PMI report noted that improving conditions in the manufacturing sector was “mainly driven by a rebound in output, new business and employment growth.” Moreover, “job creation gathered pace across the manufacturing sector in April, as highlighted by the strongest upturn in payroll numbers since December 2014.” Since manufacturing was the main drag to employment back in March, it’s therefore good to hear that employment in the manufacturing sector apparently saw a substantial pick-up in April.

Moving on, the resource sector is still expected to continue shedding jobs despite the recent climb in oil prices, as Canadian oil companies continue to downsize. Meanwhile, the construction industry, which has also been steadily losing jobs, will likely continue to lose jobs for a while because the number of new residential buildings that started construction in March was only around 204K (215K expected, 219K previous) and “Phase 1” of Canada’s ambitious infrastructure plan hasn’t been fully implemented yet.

To summarize, Markit/RBC is saying that the manufacturing sector saw a substantial increase in payroll numbers, which will hopefully offset another round of expected job losses from the construction and resources sectors. The comprehensive Ivey PMI report is unfortunately missing from our equation, but if the Bank of Canada’s Business Outlook Survey is right and the labor-intensive service sector continues to generate jobs, then we can expect another net increase in jobs. Heck, if that is the case, then there’s even a chance that we’ll see an upside surprise for the upcoming jobs report.

 

As usual, expect a knee-jerk reaction from forex traders if the actual readings miss or beat expectations, but make sure to keep an eye on how oil benchmarks are performing, especially if you have longer-term trades in mind.