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Weak Canadian Jobs Report May Hurt Loonie

Published July 8, 2016
  • The US and Canada delivered starkly divergent jobs reports this morning, and the Canadian dollar may have to take it on the chin in the coming few sessions as a result
  • The US added 287K jobs to its economy in June, vastly outstripping the 175K consensus forecasting and a profound improvement on the meager 38K added in May
  • Interestingly the unemployment rate ticked up two notches to 4.9% in June from 4.7% in May, however the participation rate increased as well to 62.7% from 62.6% which may account for some the increase as more people were looking for work
  • On the downside, average wages rose 0.1% which missed expectations for a 0.2% increase…
  • …this is likely the weakest part of the report and a segment that the Fed has consistently noted as an area of concern – hard to get a pop in inflation when wages are so flat….which in turn makes it tough to raise rates 
  • North of the 49th there was greater cause for concern
  • The Canadian economy lost -0.7K jobs, bringing total job creation in 2016 to a paltry 108K over the first 6 months of 2016 with the bulk of those gains via the addition of 77K part time positions…..a recipe for success, a strong dollar and higher interest rates indeed….
  • In June this theme continued as Canada lost 40.1K full time positions and added 39.4K part time positions
  • The unemployment rate ticked down to 6.8% – however this was likely fuelled by a drop in the participation rate to 65.5% from 65.7%….the opposite of what happened in the US
  • Yes, we must acknowledge the temporary effects of the wildfires in Alberta – but the overall trend for job creation in 2016 has been rather modest (if not downright weak) and thus the BoC may have to take a slight dovish turn in the near future in order to support this aspect of the domestic economy – Poloz delivers his latest rate decision and economic update next week
  • USDCAD weaker on the day into the mid 1.3000's but still within its recent well defined range
  • Oil prices are rebounding slightly from yesterday's 4% drop which is likely helping and stocks in the US are looking to open higher to close out the week

Chart: USDCAD sideways consolidation continues. As we approach the apex of the ascending triangle, there is risk of a topside breakout.