Event Guide: Canada’s Employment Report (August 2023)

Canada is about to drop its August labor market data!

Now, the big question is: Will this report give the Bank of Canada (BOC) a friendly pat on the back for their policy choices this week?

Or will those numbers have traders be like, ‘Hey central bank, time for a wardrobe change!’

If you’re thinking about riding the potential Loonie rollercoaster when these stats hit the stage, here are the deets you gotta be familiar with before making your moves:

Event in Focus:

Canada’s August Employment Data: Employment Change, Unemployment Rate

When Will it Be Released:

September 8, 2023 (Friday) 12:30 pm GMT

Use our Forex Market Hours tool to convert GMT to your local time zone.

Expectations:

•  A net -8K jobs loss in August, following a 6.4K job decrease in July
• The Unemployment rate is expected to tick higher from 5.5% to 5.7%
• Average hourly wages (y/y) to slow down from 5.0% to 4.8%
• Participation rate to see an uptick from 65.6% to 65.7%

Relevant Data Since Last Event/Data Release:

S&P Global Canada manufacturing PMI dropped from 49.6 to 48.0; “staffing levels were lowered for a fourth month in a row, at a rate not seen since mid-2020”

Previous Releases and Risk Environment Influence on the Canadian Dollar

August 4, 2023

Event Results / Price Action:

Canada unexpectedly shed jobs in July as it showed a net of 6.4K jobs lost when the markets had expected a 24.6K net gain. The unemployment rate also ticked higher from 5.4% to 5.5% and marked its third consecutive increase.

CAD saw mixed reactions to the news, mostly because the U.S. NFP reports were also printed at the same time. Mixed U.S. labor market reports led to USD selling and a bit of risk-taking.

Thanks to higher oil prices also propping the oil-related Loonie throughout the week, CAD selling was minimal when the disappointing numbers came out.

CAD ended the day higher against AUD, NZD, GBP, and JPY but lower against USD, EUR, and CHF.

Risk Environment and Intermarket Behaviors:

A couple of bearish headlines including weak Chinese PMIs, Fitch downgrading the U.S. long-term credit grade, and growth concerns over a high-interest rate environment had been weighing on risk assets at the time.

Winners included USD, JPY, and even BTC/USD while gold and equities turned lower.

July 7, 2023

Event Results / Price Action:

Canada’s June jobs report turned out better than expected as the economy added 59.9K jobs during the month versus the projected 5K gain and the earlier 17.3K decline.

The unemployment rate ticked higher from 5.2% to 5.4% but components of the figure revealed that this was mostly due to more folks returning to the labor force to pursue job opportunities.

The Loonie was actually off to a rough start for the week, as the Canadian manufacturing PMI reflected industry contraction while traders priced in a strong U.S. jobs report.

Although the Canadian dollar popped higher upon seeing upbeat employment data, the gains were cut short by a weaker-than-expected Ivey PMI figure.

Risk Environment and Intermarket Behaviors:

Crude oil was off to a positive start early in the week, following the surprise output cuts announced by Saudi Arabia over the weekend. Unfortunately, the correlated Loonie was barely able to take advantage, as traders seemed on edge about higher global borrowing costs.

Risk-off flows accelerated when the U.S. and China printed downbeat PMI readings, followed by relatively hawkish FOMC minutes, spurring recession jitters and weighing on commodity currencies.

Price action probabilities:

Risk sentiment probabilities: Like in the July release, markets are concerned that higher crude oil prices and higher bond yields/interest rates would derail growth momentum.

These concerns are currently weighing on “risk” assets, characterized by weakness in equities and crypto assets on the session, boosting flows towards the U.S. dollar so far this week.

And without major catalysts schedule ahead, this broad risk aversion lean may hold into the Friday Canadian jobs report.

There is plenty of central bank speak on Thursday to watch, especially from the Federal Reserve, that may influence risk sentiment. But the probability is low that we’ll see a divergence from the recent sentiment that inflation remains sticky but it’s likely monetary policies are restrictive enough (i.e., rising probability that we may be near the end of the rate hiking cycle).

Canadian Dollar scenarios:

Potential Base Scenario: There aren’t a lot of leading indicators that may point to exact figures. However, the business and consumer surveys that we do have aren’t talking about possible reversals of a weakening labor market. We could indeed see higher net job cuts, lower average wages, and a higher unemployment rate in August.

If that data outcome plays out, CAD may take a hit before the weekend, with a rising probability of weakness if we see the Loonie rebound ahead of the event. That scenario may be a possibility with the Bank of Canada’s arguably hawkish hold today (the BOC doesn’t find any comfort in the near-term inflation outlook / prepared to raise rates if needed), and if Thursday’s Canada Ivey PMI update unexpectedly ticks higher.

If all of that plays out, then the Loonie may draw in sellers on a net disappointing update ahead of the weekend, especially against safe havens like USD, JPY, and GBP if broad risk sentiment leans negative on Friday.

Potential Alternative Scenario: If this week’s risk sentiment doesn’t turn around and Canada’s labor numbers surprise to the upside, then CAD may draw in buyers against its fellow comdolls like AUD and NZD.

Lastly, don’t discount the idea of taking profits before the end of the trading session. In July’s release, CAD lost most of its gains before the day ended. Almost ditto for the August release, when CAD pulled back to half of its reactionary move before revisiting its daily lows.