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USDCAD: Trading Canada’s Employment Report

By , Currency Analyst
08 June 2012 06:00 GMT

Trading the News: Canada Net Change in Employment

What’s Expected:

Time of release: 06/08/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: 5.0K

Previous: 58.2K

DailyFX Forecast: -5.0K to 15.0K

Why Is This Event Important:

Canada is expected to add another 5.0K jobs in May and the ongoing improvement in the labor market may increase the appeal of the Canadian dollar as it raises the scope for a rate hike. Although the Bank of Canada kept the benchmark at 1.00% in June, the central bank continued to reiterate that removing monetary stimulus ‘may become appropriate,’ and Governor Mark Carney may sound more hawkish in the second-half of the year as the recovery gradually gathers pace. However, as the BoC looks to address the record-rise in household indebtedness, we may see the central bank refrain from a series of rate hikes, and Mr. Carney may continue to sound cautiously optimistic amid the ongoing slack within the real economy.

Recent Economic Developments

The Upside

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (MAY)

54.5

60.5

Gross Domestic Product (Annualized) (QoQ) (1Q)

1.9%

1.9%

Retail Sales (MoM) (MAR)

0.3%

0.4%

The Downside

Release

Expected

Actual

Building Permits (MoM) (APR)

-1.5%

-5.2%

International Merchandise Trade (MAR)

0.50B

0.35B

BoC Senior Loan Officer Survey (1Q)

--

-16.9

As the economic recovery gradually gathers pace, the pickup in private sector consumption may encourage businesses to expand their labor force, and a positive development may spark decline in the USDCAD as it raises the scope for a rate hike. However, the slowdown in building activity paired with easing trade conditions may drag on the labor market, and a dismal jobs report may keep the BoC on the sidelines as the central bank aims to encourage a stronger recovery. In turn, the recent pullback in the USDCAD may be short-lived, and we may see the pair work its way back towards the 1.0400 figure as it curbs expectations for higher borrowing costs.

Potential Price Targets For The Release

USDCAD_Trading_Canadas_Employment_Report_body_ScreenShot065.png, USDCAD: Trading Canada’s Employment Report

As the relative strength index on the USDCAD falls back from overbought territory, an upbeat employment report should fuel the pullback from 1.0445, but the moving averages certainly paint a bullish picture for the pair as the 50-Day SMA (1.0050) looks poised to cross back above the 200-Day SMA at 1.0092. Indeed, the topside break of the symmetrical triangle further supports a bullish outlook for the exchange rate, but we may see the USDCAD consolidate going into the end of the week as it fails to preserve the upward trending channel carried over from the previous month.

How To Trade This Event Risk

Projections for another rise in employment certainly casts a bullish outlook for the loonie, and the market reaction may set the stage for a long Canadian dollar trade as market participant continue to look for a rate hike. Therefore, if we see jobs increase 5.0K or greater in May, we will need to see a red, five-minute candle following the report to generate a sell entry on two-lots of USDCAD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in an effort to lock-in our gains.

In contrast, the ongoing slack in private sector activity paired with the slowdown in global trade may drag on the labor market, and a weak employment print may drag on the exchange rate as it dampens the scope for a rate hike. As a result, if the print falls short of market expectations, we will implement the same strategy for a long dollar-loonie trade as the short position laid out above, just in reverse.

Impact that Canada’s Employment report has had on CAD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2012

05/11/2012 12:30 GMT

10.0K

58.2K

-55

-38

April 2012 Canada Net Change in Employment

USDCAD_Trading_Canadas_Employment_Report_body_ScreenShot063.png, USDCAD: Trading Canada’s Employment Report

Employment increased another 58.2K in April following the 82.3K expansion the month prior, while the jobless rate climbed to 7.3% from 7.2% as discouraged workers returned to the labor force. The better-than-expected print propped up the Canadian dollar, with the USDCAD slipping back below parity, but we saw the pair consolidate throughout the North American trade, with the exchange rate ending the day at 1.0000.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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08 June 2012 06:00 GMT