Canada: July labour force survey forecasted to reveal the creation of 5k jobs – TDS

Research Team at TDS, suggests that the Canada’s July Labour Force Survey is forecast to reveal the creation of 5k jobs while the unemployment rate should rise two tenths of a percentage point to 7.0%.

Key Quotes

“The uptick in the unemployment rate is a product of anemic job growth, a rebound in labour force participation, and the low threshold for a move (unemployment rate was 6.843% at three decimals in June).

The full/part time breakdown will be determined by a crosscurrent of seasonal factors and anticipated reversals working against each other. Historically, July has been a strong month for part time employment due to the supply of youth entering the work force temporarily, however, the gain of nearly 40k part-time jobs last month (a 1.1 standard deviation move) argues for a pullback.

On an industry basis, accommodation and food services will likely unwind a portion of the 20k jobs added in June while public administration is also likely to see significant job losses due to the short-term nature of census-related hiring (see middle chart). At the other end of the spectrum we expect to see a bounce in construction employment after the loss of 29k positions last month.

Note that the Canadian job data will need to compete with the simultaneous release of nonfarm payrolls in the United States where we are above the market in looking for the creation of 188k jobs and a 0.3% monthly increase in average hourly earnings. International trade for the month of June will also be released in both countries and while it is likely to be ignored by the market, it is an especially relevant indicator for the Canadian economy. Here we are below the market in looking for a narrowing in the deficit to just $3.0 billion.

Foreign Exchange

The July NFP report is likely to cloud the impact of the Canadian release for USDCAD. Indeed, US data surprises have been a key force driving markets over the past few weeks with softer US data helping consolidate moves in USDCAD. Even so, Canadian data surprises have trended lower while economic momentum has faded since the start of the year. The wildfires have had an impact, for sure, but the broad-based slowdown in other sectors suggests the economy has lost steam.

With TD above consensus on NFP but below consensus on the Canadian release, we look for USDCAD to drift higher on the day. A range of positioning indicators suggest the market is still long CAD so with Canadian data likely to remain weak we continue to look for a steady shift in market positioning. Other drivers also favor a move higher over the near-term. On the topside a key level to watch is 1.3110 with a break opening up a test of 1.3260.”