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CAD: Setting up for March employment numbers – TDS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 8, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at TDS, suggests that on the heels of two consecutive months of disappointing employment prints, the Canadian labour market likely recovered in March with a forecasted addition of 18k jobs.

    Key Quotes

    “Paired with a modest increase in the labour force, the unemployment rate is expected to have slipped a tenth of a percentage point to 7.2%. The employment forecast is based in large part on expected reversals from outsized moves in the February report.

    Of note, the 52k drop observed in full-time hiring is typically followed by a 45k increase in the subsequent month. Unwinding the 50k jump in part-time hiring is expected to only offset a portion of this increase. A similar dynamic is expected to unfold in aggregate service sector hiring as well as in health care and the 'other' services category, both of which are set to rebound from very weak prints in the prior month.

    One potential source of uncertainty is the construction sector which added an outsized 34k jobs in February. This magnitude of move has not historically been unwound which suggests there is an upside risk to our otherwise upbeat forecast for the overall labour market.

    Returning to the macro backdrop, recent surveys of hiring intentions have shown signs of firming and it does appear that the Canadian economy has moved beyond its peak point of pessimism reached earlier this year. So as much as technical factors likely helped lift March employment, the six-month trend in hiring will still stay subdued at around 7k.

    Foreign Exchange: The Canadian dollar has traded in a well-contained range since last month's employment report. It's up about 2% against the USD since the March release but flat in trade-weighted terms. The recent top in both oil prices and positive data surprises helped to stem the rally. What’s more, the Yelleninspired risk rally also looks fragile, so we think a stronger tone in the greenback and less market-friendly risk appetite could weigh on CAD in the coming weeks.

    More immediately, we suspect this month’s employment report will have less of an influence on CAD than prior reports. Indeed, a rolling 90-day correlation (first difference) of CAD to Canadian data surprises shows little link between the two. At the same time, the OIS curve is only pricing in about 14% chance of a rate cut for midyear so there is little support this report will provide to the immediate BoC outlook. Taken together, we look for a steady rise in USD/CAD over Q2 with our high-frequency indicators pointing to a move back to 1.34 at the start of Q2.”
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