Canada Unemployment Rate Preview: Canadian Dollar traders to scrutinize jobs report
- Unemployment Rate in Canada expected to rise a tad to 5.1%, with lower job growth forecast for January.
- Canadian Dollar bulls will need an upbeat jobs report to re-start their uptrend versus the US Dollar.
- Bank of Canada nearing end of monetary policy tightening, better-than-expected employment data could delay it.
The Canadian Labor Force Survey report, released by Statistics Canada, is scheduled for release at 13:30 GMT, on February 8. Markets expect the Unemployment Rate to tick higher to 5.1% in January from 5% in December. Net Change in Employment, which rose by 104,000 in December, is forecast to increase by only 15,000.
As the Bank of Canada (BoC) closes in on the end of its tightening cycle, the labour market data could influence the Canadian Dollar’s (CAD) performance against its rivals. A stronger than expected growth in payrolls and wage inflation, as measured by the Average Hourly Earnings, could help the CAD gather strength against its rivals in the near term. On the other hand, the currency is likely to have a hard time finding demand if the jobs report reveals loosening conditions in the labour market.
How can the unemployment report shape the Bank of Canada policy?
Earlier in the week, the Market Participants Survey for the fourth quarter of 2022 published by the Bank of Canada showed that the median of responses for the monetary policy rate by end-2023 stood at 4%, forecasting a 50 bps cut from the current level. Following the January policy meeting, the BoC hiked its policy rate by 25 basis points to 4.5% and noted that it is likely to hold the interest rate at this level while assessing the impact of cumulative rate increases on the economy.
A cooldown in the jobs market could definitely allow BoC policymakers to start considering a policy pivot and weigh on the Canadian Dollar. Market expectations for the January Labor Force Survey report are indeed notably lower than the December figures, as economists expect a relatively small job growth (market consensus at 15K) and lightly higher Unemployment Rate (5.1%).
In its policy statement, the Bank of Canada noted that it is prepared to increase the policy rate further if needed to return inflation to 2% target; continuing the quantitative tightening program. In December, annual wage inflation, represented by the Average Hourly Earnings, stood at 5.2%. A significant increase in that component is likely to be assessed as a factor that would limit the decline in consumer inflation. In that scenario, investors could refrain from betting on further Canadian Dollar weakness.
Economists at TD Securities expect a slow down of the employment gains the Canadian economy in January, with wages decelerating:
“We look employment to rise by 5K for a deceleration from the recent trend, with services driving job growth, as the UE rate edges higher to 5.1% and wages decelerate to 4.3% YoY.”
When is January’s Canada Unemployment Rate released and how could it affect USD/CAD?
The Canadian Unemployment Rate for January will be released within the publication of the Labor Force Survey on Friday, February 10 at 13.30 GMT. The market expects softer figures than in December throughout all the key indicators, which could play into the hands of USD/CAD bulls, who have recovered some ground in the past week, as the US Dollar (USD) rallied across the board after the super strong Nonfarm Payrolls data.
Zooming out a bit, USD/CAD has declined since the beginning of the year amid the broad-based selling pressure surrounding the US Dollar. The pair’s losses, however, were limited as the impressive January jobs report from the US revived expectations for two more 25 bps Fed rate increases in March and May, helping the USD regather its strength.
The pair faces strong support at 1.3300 (psychological level, static level) ahead of 1.3230, where the 200-day Simple Moving Average (SMA) aligns. A daily close below the latter could be seen as a significant bearish development and open the door for an extended slide toward 1.3250 (former resistance, static level). For that type of reaction to occur, though, the jobs report needs to offer surprisingly strong figures in wages and payrolls to revive hawkish BoC monetary policy expectations.
On the upside, 1.3500 (50-day SMA, static level, psychological level) forms interim resistance before 1.3540 (100-day SMA). In case USD/CAD rises above that hurdle and starts using it as support, it could target 1.3700 (static level, psychological level) next.
Canada unemployment report related content
- USD/CAD Price Analysis: Bulls brace for a bumpy road to the north as US/Canada data looms.
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- Elliott Wave count suggests further upside in USD/CAD [Video].
About the Employment Change
The Employment Change released by Statistics Canada is a measure of the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive, or bullish for the Canadian Dollar, while a low reading is seen as negative or bearish.
About the Unemployment Rate
The Unemployment Rate released by Statistics Canada is the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labour market. As a result, a rise normally leads to a weakening of the Canadian Dollar. Otherwise, a decrease of the figure is usually seen as positive (or bullish) for the CAD.