It has been an eventful week for Canada, and Friday is not going to be an exception!
There is a host of data coming out, but the most important will be the employment figures. With the BOC being the odd one out when it comes to easing among central banks, this data could be extra interesting.
After the rush towards safe havens at the beginning of the week, and considering the less than auspicious world economic environment, Canada is standing out. During the last global recession, they managed to weather the economic storm quite well.
And, right now, all the data points to them being able to pull off a do-over!
What We Are Looking For
Most of the Canadian data comes out at the same time. So we could expect to see some volatility in CAD pairs as the market digests all the data. Only the CMHC Housing Starts comes out a little early but that generally doesn’t move the forex market. The focus is likely to be on the employment change numbers, followed by the unemployment rate.
The consensus among analysts is that Canada will have added 40K jobs last month, a jump up from the -2.2K prior. This would follow the pattern lately where a smaller number is immediately offset by a larger number the next month. The average since the middle of last year has been around the 50K figure, so this is actually on the lower end of the expected range.
Canada is well within the range of what most economists consider structural unemployment. The downward trend has had difficulty getting below the 5.5 range, which would be expected in that scenario.
In fact, the consensus among analysts is that the July unemployment rate was 5.4%. This is a return to May’s extraordinary low rate (you’d have to go back to the mid-’70s to find a lower unemployment rate).
That has kept healthy pressure on the inflation rate, keeping it well within the BOC’s target. Since the end of last year, average hourly earnings have been consistently rising, a testament to the tightness in the labor market. In fact, many analysts pointed out that last month’s disappointing job adds figure was due more to a lack of finding employees than to a lack of job creation.
Something that could disrupt the employment market, however, is the implementation of new rules and hiring practices set to go into effect on September 1st. There is always a certain level of uncertainty in any regulatory change, and there is a possibility that employers might hold off on new hires until the practical effects of the changes to the Labour Code are seen.
Canada has been benefitting from higher prices in crude. It has even managed two consecutive months of trade surplus despite the ongoing world tensions on that front. This makes it attractive as a commodity currency in a flight to yield scenario, as most major central banks look to cut rates. In fact, if the general trend in CPI that we’ve seen since the beginning of the year holds, the BOC might find themselves in a position to need to hike rates.