Canada: Employment likely to rebound by a strong 30k jobs in August - TDS

Research Team at TDS, is looking for Canadian employment to rebound by a strong 30k jobs in August after falling a cumulative 31.9k in the prior two months.

Key Quotes

“Full-time jobs—following back-to-back contractions—are expected to drive the gains, partially offset by a decline in part-time employment. Service-providing industries are expected to remain the thrust of job growth and post a respectable rebound in July. Meanwhile, job growth in the remaining goods-producing industries likely remained muted as global economic uncertainty and weak energy prices continue to cloud the outlook in mining/ extraction and manufacturing sectors. In effect, the rotation toward services and away from industry continued to play out through August, challenging Canada's export-oriented growth narrative. Despite sizeable employment gains, the unemployment rate is forecasted to hold steady at 6.9%, which is consistent with labour force growth of roughly 13k to 33k and a modest improvement in the participation rate to 65.5%.

While our above-consensus projection indicates a decent recovery in job growth, the report offers limited upside to the wider economic outlook as downside risks linger. Following the Bank of Canada’s dovish turn at its September meeting, more emphasis will be placed on a downside miss.

Foreign Exchange

The recent shift from the BoC is likely to increase the importance of data releases for USDCAD. Indeed, the rolling correlation between USDCAD and Canadian data surprises has been on the rise since mid-Q3, and we see the correlation rising following the shift in tone from the recent BoC statement. This increases the focus on the August employment report. TD’s call translates into an upside surprise of 1.7 stand deviations above consensus.

Over the past year, headline employment has only three upside surprises above one standard deviation with USDCAD mostly leaning lower on the release. A strong report could lend some near-term support to CAD in the wake of the BoC meeting, but we think the Bank’s shift in tone has increased downside risks for the currency, so looks to buy dips near the bottom end of the 1.27 to 1.32 range.”