Canada’s employment data for April are due out on Friday at 1330 GMT. Forecasts point to another solid report, which would confirm the Bank of Canada’s (BoC) view that any remaining labor market slack is quickly being absorbed. While a strong set of figures may support the loonie on the news, the currency’s broader direction will also depend on any movements in oil prices.
Canada’s labor market posted a soft start to the year, but that seems to have been transitory, as jobs data have rebounded strongly recently. The unemployment rate has fallen back to a decade low of 5.8%, while the monthly net change in employment has remained well-within positive territory. It appears the jobs market is firing on all cylinders, something that the upcoming numbers are expected to confirm.
In April, the unemployment rate is forecast to have held steady at 5.8%, while the net change in employment is anticipated to have moderated a little, but to have remained within positive territory. Adding some credence to these forecasts is the Markit manufacturing PMI for the month, which showed another “robust increase in staff recruitment”.
While there are still a lot of risks surrounding Canada – including headwinds around trade, high household debt levels and competitiveness challenges – another set of solid jobs data would still be pleasant news for the BoC and could raise the likelihood for a near-term rate increase. The probability for a rate hike at the upcoming meeting in May is only 30%, according to Canada’s overnight index swaps. That said, investors are much more confident about the July gathering, assigning a 90% probability to a hike then.
If the employment data are stronger than anticipated, that may seal the deal for a July hike, bringing the loonie under renewed buying interest. Declines in dollar/loonie could find initial support near the 1.2730 barrier, the low of April 6. Further down, focus would shift to 1.2685, the peak of February 9, and then to the April 16 high at 1.2625.
Conversely, a weaker-than-expected report could generate doubts about a July hike, and thereby weigh on the loonie. Advances in dollar/loonie may stall near 1.2810, an area that halted multiple declines in early May. An upside break of that zone could open the way for 1.2920, defined by the May 4 peak. Further up, the 1.3000 psychological barrier may provide resistance.
