Statistics Canada reported on Friday that the Unemployment Rate in Canada rose to 5.2% in May from 5% in April. Net Change in Employment arrived at -17,300 following April’s increase of 41,400, missing the market expectation of +23,200 by a wide margin.
The Canadian Labor Force Survey report, released by Statistics Canada, is scheduled for release at 12:30 GMT on June 9. Markets expect the Unemployment Rate to tick higher to 5.1% in May from 5% in April. Net Change in Employment, which rose by 41,400 in April, is forecast to increase by 23,200.
The Bank of Canada (BoC) unexpectedly announced earlier that it raised its policy rate by 25 basis points (bps) to 4.75% after leaving it unchanged at 4.5% in March and April. Upcoming labor market data could influence the Canadian Dollar’s (CAD) performance against its rivals. Stronger-than-expected growth in payrolls and wage inflation, as measured by the Average Hourly Earnings, could help the CAD gather strength against its competitors by suggesting that the BoC could continue to tighten its policy. On the other hand, the currency will likely have difficulty finding demand if the jobs report reveals loosening conditions in the labor market.
How Can The Unemployment Report Shape The Bank Of Canada Policy?
The BoC noted that increasing concerns over the Consumer Price Index (CPI) inflation getting stuck materially above the 2% target was the primary reason behind the policy rate hike. The BoC reiterated that labor market conditions remained tight in Canada and further explained:
“Higher immigration and participation rates are expanding the supply of workers, but new workers have been quickly hired, reflecting continued strong demand for labor.”
Unless there is a noticeable cooldown in the jobs market, the BoC should stay focused on taming inflation, which could translate into one more rate increase in July. In a recently published note to investors, Citigroup economists said they anticipate the BoC to hike the key rate to 5% at the next policy meeting. In April, annual wage inflation stood at 5.2%. A reading close to that figure and a healthy payroll increase, at or above market expectations, should allow the BoC to consider an even tighter policy.
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 the May CPI inflation data.
We look for job growth to slow to 25K in May for deceleration from the recent trend of 57K, keeping the unemployment rate stable at 5.0%. We look for service-sector hiring to drive the headline print, alongside a rebound in full-time employment after the pullback in April. We also look for wage growth to remain elevated at 5.1%, down 0.1pp from last month.
– TDS
When Is May’s Canada Unemployment Rate Released, And How Could It Affect USD/CAD?
The Canadian Unemployment Rate for May will be released with the publication of the Labor Force Survey on Friday, June 9, at 12.30 GMT. The market expects moderate payroll growth in May and sees the Unemployment Rate ticking higher to 5.1% from 5%. Ahead of next week’s CPI data from the US and the Federal Reserve’s policy announcements, investors are unlikely to take large US Dollar (USD) positions. Hence, Canada’s jobs report could influence USD/CAD’s action ahead of the weekend.
As explained above, the CAD’s reaction to employment data should be straightforward due to the potential influence on the BoC’s rate outlook. A stronger-than-forecast increase in Employment Change alongside sticky wage inflation could boost CAD and cause USD/CAD to stretch lower and vice versa.
The daily chart points to a build-up of bearish momentum in USD/CAD, with the Relative Strength Index (RSI) indicator dropping below 40 following the BoC’s rate hike on Thursday. On the downside, 1.3300 (psychological level) aligns as the first support ahead of 1.3200, where the Fibonacci 50% retracement of the August-November uptrend is located.
If USD/CAD gathers bullish momentum after the employment data, it will likely face first resistance at 1.3400 (psychological level, static level) before 1.3450 (Fibonacci 38.2% retracement). A daily close above the latter could open the door for an extended rebound toward 1.3500 (100-, 200-day Simple Moving Average).