Will Canada’s July jobs report be important for the loonie? – Forex News Preview



Canadian employment likely returned to growth in July, Statistics Canada will show on Friday at 12:30 GMT, but the rebound may not be anything to celebrate. If that turns out to be the case, the figures could do little to alter investors’ rate hike expectations, leaving the loonie under the US dollar’s influence.

Soft employment growth expected

After a contraction of 43.2k in June, employment in Canada is expected to have increased by 20k in July. Although a return to growth is always welcomed, such an addition could still be among the smallest this year, and not enough to press the unemployment rate further lower. Instead, analysts see the unemployment rate ticking up to 5.0% from 4.9% previously but remaining close to record lows.

In a nutshell, the labor market is still quite tight and that might explain the marginal growth in job additions. The latest S&P Global manufacturing PMI survey has also witnessed the softest employment expansion in more than a year, citing restructuring proceedings, which led some companies to cut some workforce.

How could the BoC react? 

The question that comes to mind now is how the data will affect the central bank’s rate outlook. Following a surprisingly extraordinary 100 basis point rate increase in July, investors are now debating whether September’s policy meeting will result in a reduced but still robust 75 bps or 50 bps rate hike.

If June’s employment downfall unexpectedly extends for another month, sending preliminary warnings that boiling inflation has started to weigh on hiring, even if wages are still rising at a slower pace than prices, more investors could place their rate expectations on the less hawkish scenario. In this case, the loonie could decelerate, bringing the 20-day simple moving average (SMA) at 1.2910 per US dollar under examination, while not far above, the 1.2950 resistance will be closely watched as well. A bigger miss in the data could see the greenback rallying towards the key resistance area of 1.3036 – 1.3083, especially if the US nonfarm payrolls data due on the same day and time appear relatively more impressive.

 

In the positive scenario, where the economy creates more jobs than analysts forecast, the central bank could feel more confident to front-load its tightening cycle as inflation seems to be transforming into a more persistent phenomenon.

Housing market eyed

Of course, monetary tightening seems to be already draining the heat of the booming housing market, with home prices tumbling the most in at least 17 years in June. Though, the housing price index is still among the highest in more than a decade, while household debt still represents more than 100% of households' income.

Therefore, although the falling housing market brings flashbacks from the 2007-2009 financial crisis, policymakers will probably prioritize their inflation mission if the labor market stands firm in the year ahead. Besides, given Canada’s commodity rich economy, rising energy prices could create more revenues for businesses. That said, traders may remain patient and wait for August’s employment report before they make up their minds about either a 50- or 75-bps rate hike in early September.

As regards the market reaction, the Canadian employment report will have to decisively beat market expectations and come in brighter than the US nonfarm payrolls to squeeze dollar/loonie below 1.2800. In this case, the door will open for the 200-day SMA at 1.2731, while even lower, the 1.2640 constraining zone could come under examination ahead of the long term descending trendline.

Latest News

Nonfarm payrolls: More bad news for the Fed? – Forex News Preview


RBNZ to stick to its guns, eyes on guidance – Forex News Preview


Week Ahead – RBA and RBNZ to weigh 50-bps hikes but NFP report to set the mood


Can the RBA bring the aussie back to life? – Forex News Preview


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.