CAD: Setting up for employment - TDS

Research Team at TDS, suggests that the Canada’s May Labour Force Survey will be one of the first data points to reveal the economic impact of the wildfires in Northern Alberta.

Key Quotes

“Although the extraction industry only makes up a small share of the overall labour market, the dislocation caused by the fires is enough to contribute to the forecasted loss of 10k jobs. The more significant source of anticipated weakness is the service sector which has added more than 100k jobs in the last two months and is due for a retrenchment. The trade sector and accommodation & food are likely candidates which will more than offset expected hiring within the public sector related to the 2016 Census. Outside of the extraction sector, goods producing industries should experience a better month with manufacturing and agriculture expected to rebound.

Looking though the monthly volatility and despite the forecasted drop in May, the six-month trend in employment will nudge higher to +7k. This pace of hiring is consistent with conditions in the wider economy and is unlikely to have a lasting impact on the Bank of Canada.

Foreign Exchange

The US employment report tends to cloud the Canadian report’s impact on USD/CAD. The May release will take place in isolation, offering better scope to drive USD/CAD intraday. Of the last 11 US and Canadian employment reports, two-thirds of them have fallen on the same day. The US report probably skewed the impact on USD/CAD for most of those data releases. For the other four prints (Canada only employment report) we saw three upside surprises in the headline release and one downside miss. The upside surprises saw USD/CAD move, on average, 0.2% higher while the March 2016 miss added 0.4% to USD/CAD.

Given the peak in Canadian data surprises, we think USD/CAD is more vulnerable to a downside miss. TD expects a softer headline release against consensus, suggesting more scope for USD/CAD to grind higher ahead of the weekend. Our high frequency models point to an immediate target of 1.276.”