Of late, the CAD hasn’t benefited as much when the market has taken on an appetite for risk.
Other commodity currencies have outperformed it, but this might not be so much Canada’s “fault”.
The spread of coronavirus is theorized to be dependent, in part, on weather, and Canada didn’t see a significant increase in cases until later in their spring. Because Canada’s case numbers increased later, their reopening and recovery will also come later.
On top of that is Canada’s dependence on its southern neighbor, which saw a record of new cases as recently as last week. The concern is the potential reinstatement of lockdown measures. Because this would cut gasoline consumption in Canada’s largest market.
On the other hand, Canada’s cases did spike up at the end of June (as did many countries in the world) but have since settled down. However, the increase might have been enough to affect employment during the month.
What We Are Looking For
The key number the markets are likely to focus on is the Net Change in Employment figure. This is because the unemployment rate is likely to be distorted a bit from people temporarily not participating in the market.
There isn’t all that firm of a consensus Net Change in Employment. The range of projections is between 400K to 700K jobs created during June. There seems to be an increasing agreement that the result will be at the top of that range. Of course, this would be a record amount in any case.
Since the beginning of the pandemic, Canada lost just a little over 3.0M jobs and has recovered just under 290K. Evidently, we are far from recovery.
But, if we reach the high end of the range, that would imply over a third of the job market losses had been recovered before the middle of the year.
The Market Reaction
Since there isn’t as firm of a consensus, we expect to see the CAD strengthen should the result come in near or, better yet, above the range of expectations.
Analyst expectations have been significantly underestimating Canada’s economic resilience, which might be the case once again. After Tuesday’s Ivey PMI survey showing companies are quite optimistic about the medium term, hiring might be picking up significantly.
Should the bulls take over after the data, the CAD has some catching up to do. Compared to the USD, the CAD is around 3% behind NZD and AUD for trading over the last week.
Expectations are for the unemployment rate to come in at 12.0%, a substantial reduction from 13.7% in May. But, it’s important to parse this data through the participation rate, which in April dropped to the lowest rate in years as people stayed out of the labor market.
It staged a bit of a recovery in May to 61.4%. And we can expect it to increase to 63.3% for June. Prior to COVID, the participation rate was pretty consistently between 65-66%.
It’s perfectly possible to have a knock-out jobs number, but a relatively modest decrease in the unemployment rate, as more people return to the workforce.