- Canada’s unemployment rate is expected to rise slightly to 5.1%, with job growth losing momentum in May.
- Canadian Dollar bulls will need an upbeat jobs report to prolong the uptrend against the US Dollar.
- The Bank of Canada unexpectedly raised its policy rate in June, but a weak jobs report could attract dovish bets.
Today, Friday June 9, at 12:30 GMT, the Canadian employment report, published by Statistics Canada, will be released. Markets expect the unemployment rate to rise to 5.1% in May from 5% in April. The net change in employment, which increased by 41,400 people in April, it is expected to increase by 23,200 people.
Earlier in the week, the Bank of Canada unexpectedly announced a 25 basis point (bp) hike in the official interest rate to 4.75%, after holding it unchanged at 4.5% in March and April. Upcoming labor market data could influence the performance of the Canadian Dollar (CAD) against its rivals. Stronger-than-expected growth in jobs and wage inflation, as measured by average hourly earnings, could help the CAD gain strength against his rivals by suggesting that the BoC could further toughen its policy. On the other hand, the currency is likely to struggle to find demand if the jobs report reveals an easing of labor market conditions.
How can the unemployment report influence Bank of Canada policy?
The Bank of Canada noted that growing concern that CPI inflation was well above the 2% target was the main reason for the decision to raise the interest rate. official. The BoC reiterated that labor market conditions remained difficult in Canada:
“Increasing immigration and participation rates are expanding the supply of workers, but new employees have been hired quickly, reflecting continued strong demand for labor.”
Barring a noticeable cooling off in the labor market, the BoC should remain focused on reining in inflation, which could translate into another rate hike in July. In a recently published investor note, Citigroup economists say they expect the BoC to raise the benchmark rate to 5% at the next policy meeting. In April, annual wage inflation stood at 5.2%. A reading close to that number, coupled with healthy job growth, at or above market expectations, should allow the BoC to consider further tightening.
On the other hand, a significant decline in annual wage growth and a disappointing net change in employment, close to 0, could cause markets to reconsider the BoC’s policy outlook, at least until May’s CPI inflation data.
We expect job growth to slow to 25,000 in May, which would be a slowdown from the recent trend of 57,000, keeping the unemployment rate stable at 5.0%. We expect hiring in the services sector to drive the headline data, along with a rebound in full-time employment after the decline in April. We also expect wage growth to remain strong at 5.1%, down 0.1 percentage points from last month.
-TDS
When is the Canadian unemployment rate for May released and how could it affect USD/CAD?
The Canadian unemployment rate for May will be released with the release of the labor force survey on Friday, June 9 at 12:30 GMT. The market expects moderate job growth in May and believes that the unemployment rate will increase from 5% to 5.1%. Pending next week’s US CPI data and Federal Reserve monetary policy announcements, investors are unlikely to take large positions in the US dollar (USD). Therefore, the Canadian jobs report could influence USD/CAD action before the weekend.
As explained above, the CAD reaction to the jobs data should be direct due to the potential influence on the BoC’s rate outlook. A stronger-than-expected rise in the job change coupled with persistent wage inflation could provide a boost to the CAD causing the USD/CAD to stretch lower and vice versa.
The daily chart points to a buildup of bearish momentum in USD/CAD with the Relative Strength Index (RSI) dipping below 40 following the BoC rate hike on Thursday. On the downside, 1.3300 (psychological level) lines up as first support ahead of 1.3200, where the 50% Fibonacci retracement of the August-November uptrend lies.
Should USD/CAD gain momentum on the back of the jobs data, it is likely to face first resistance at 1.3400 (psychological level, static level) before 1.3450 (38.2% Fibonacci retracement). A daily close above the latter could open the door for a prolonged bounce towards 1.3500 (100 and 200 SMA).
About the change in employment
The change in employment published by Statistics Canada measures the change in the number of people employed in Canada. In general, an increase in this indicator has positive implications for consumer spending, which stimulates economic growth. Therefore, a high reading is considered positive or bullish for the Canadian Dollar, while a low reading is considered negative or bearish.
Unemployment rate
The unemployment rate published by Statistics Canada is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator of the Canadian economy. If the rate rises, it indicates a lack of expansion in the Canadian job market. Consequently, a rally typically entails a weakening of the Canadian dollar. Otherwise, a decline in the figure is usually considered positive (or bullish) for the CAD.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
