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Canada is about to drop its September labor market update!

Will we get another surprise positive read or will expectations be met with a signal of a slowing employment environment.

If you haven’t done your homework yet on the Loonie, here are the deets you gotta be familiar with before working on your risk management plan.

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Event in Focus:

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

When Will it Be Released:

October 6, 2023 (Friday) 12:30 pm GMT

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

Expectations:

Full time employment change: -15K vs. +32.2K previous

The Unemployment rate is expected to tick higher from 5.5% to 5.6%

Average hourly wages (y/y) to slow down from 5.2% to 5.5%

Participation rate to see an uptick from 65.5% to 65.9%

Expectations as of Oct.3 2023, 3:50 pm GMT

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Relevant Data Since Last Event/Data Release:

Canada Manufacturing PMI for September: 47.5 vs. 48 previous; “jobs and purchasing activity deteriorate”

Previous Releases and Risk Environment Influence on the Canadian Dollar

September 8, 2023

Overlay of CAD vs. Major Currencies Chart by TradingView
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Overlay of CAD vs. Major Currencies Chart by TradingView

Event Results / Price Action:

Canada surprised the markets with a much better-than-expected employment update for August, clocking in at +40k net jobs added vs. a decline in July. This prompted a spike higher across the majors, even against the U.S. dollar which also saw a better-than-expected U.S. employment update released at the same time. This move was able to sustain for the rest of the session and lock in the Loonie as one of the top gainers for the week.

Risk Environment and Intermarket Behaviors:

The environment for this particular trading week was shaped by continued hawkish Fed speculation, arguably net weak global economic & sentiment updates, and Chinese property developer Country Garden Holdings avoiding a default.

Oil was one of the big movers, spiking higher after Saudi Arabia and Russia announced plans to extend their production cuts through December. This was likely supportive of the Loonie, contributing to its gains along with positive Canadian jobs data and the Bank of Canada’s openness to raising rates if further needed.

August 4, 2023

Overlay of CAD vs. Major Currencies Chart by TV

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Overlay of CAD vs. Major Currencies Chart by TradingView

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.

Price action probabilities:

Risk sentiment probabilities:

Broad sentiment this week continues to be pro-Dollar and risk-off as rising bond yields and contractionary business sentiment draws capital away from most of the major asset classes into the Greenback.

Looking ahead, we’ll get more U.S. job updates through the week, which if better-than-expected, may shift risk sentiment a bit away from the current aversion vibes on likely raised “soft landing” bets. But it will also likely keep traders pro-Dollar leading up to the always anticipated U.S. Non-farm payrolls report on Friday.

Canadian Dollar scenarios:

Potential Base Scenario: Our only leading indicator for the Canadian jobs update at the moment is the S&P Canada Manufacturing PMI survey, which noted companies were shedding jobs in September as output and new orders fell at an accelerated rate.

We’ll get the Ivey Canadian PMI update on Thursday for further clues on the employment environment, but given the overall trend of a global industrial downturn, odds are likely that the Ivey PMI update will also signal weakness in the employment sector.

Based on the last negative print back in August, it’s likely that a negative read for September may potentially spark broad weakness in the Canadian dollar.  And based on that August print, even if the Loonie is weak on the week, sellers may not hesitate to sell more if the number much more job losses than expected.

In this scenario, pairing up a CAD short with a safe haven makes sense, with the exception being against the Greenback since the U.S. will release their own employment data at the same time. With USD, you’ll have to further assess their jobs report before considering a risk management strategy on USD/CAD.

Potential Alternative Scenario: The Canadian jobs report does have a pretty long history of surprising the markets, and sometimes far from expectations. That’s what tends to spark the strong intraday moves, but that also makes it probably a better practice to wait and see what the number is before creating your own risk management plan.

In the highly unlikely scenario we see a surprise strong Canadian jobs print once again, look for the Loonie to likely recover on both fundies news trader buys, as well as short covering if CAD continues to tread lower this week.

If risk sentiment is still aversion mode on Friday, long setups may be present against the Aussie and Kiwi, while long plays against CHF and JPY makes sense if traders are leaning risk-on ahead of the weekend.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.

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