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Canada Jobs Numbers: Will the BOC Restart the Pause?

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The jobs numbers from Canada are typically overshadowed by the NFP data for the US that comes out at the same time. But, given the context of what’s been happening in Canada lately, the employment figures could shake up expectations for the BOC. The loonie has been getting weaker lately as more and more traders consider that the BOC’s hike last time will be a one-off.

The surprise hike by the BOC last month after inflation rose gave the Canadian dollar some support. But, since then, economic data has painted a different picture. The softer crude prices despite announcements of cuts from Saudi Arabia and slower exports from Russia have also done their job to weaken the loonie over the last couple of weeks. Weaker than anticipated job numbers could accelerate that trend.

The important context

The BOC raised rates in part out of concern that inflation might be having “second level” effects. That’s when increasing consumer prices start forcing up labor costs. If the labor market remains tight, then it could be a continuing problem for the BOC. But, if total employment numbers drop and the unemployment rate increases, then the BOC could be under less pressure.Other leading indicators show that the economy is sputtering, which could also reduce inflationary pressures. That includes April GDP being reported as flat, compared to a 0.2% growth expected. June manufacturing PMI also slipped further into contraction at 48.8 compared to 49.0 prior. Tomorrow, is the release of the more followed Icey PMI, which is expected to remain in expansion, but fall substantially to 52.3 from 53.5 prior.

What the data says

Last week, May CPI came in exactly as expected, with the annual rate falling to 3.4% from 4.4% prior. The measure closely tracked by the BOC for its policy decisions actually came in below expectations at 3.9% compared to 4.0% expected, and down from the 4.2% reported previously. The trend, it seems, indicates that inflation pressures are diminishing, making the case for the BOC to keep rates on hold.

The consensus expectations are for the jobs numbers to come in line with that assessment as well. The unemployment rate is expected to rise to 5.4% from 5.2% prior, relieving thoughts that the market is experiencing tightness. Even though the participation rate is expected to tick down by a decimal point. A net of 10K jobs are expected to be lost, compared to -17.3K reported in April.

Potential outlook

Unless the jobs numbers come in substantially above expectations, then the case could be affirmed for the BOC to stay out of the market at the next meeting. That would imply that the loonie could be subjected to more impact from the price of crude.

A couple of days ago, Saudi Arabia announced it would extend its crude production cut of 1M bbl/d by another month. The price of petroleum moved higher, briefly. But less than three days later, the gains were already gone. Markets appear to be pricing in an expected drop in demand on slow global economic growth. That could add to further downward pressure on the Canadian dollar.

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