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. 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?
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.