Canada’s Employment Data to Improve Further Tomorrow?

Now that the controversy over Canada’s budget is over, we can look ahead at key fundamental data releases coming up.

The CAD, like other commodity currencies, has been supported by a broader feeling of optimism in the markets. In particular, Canada has seen a series of improving economic data over the summer.

Where there might be a wrinkle is that Canada escaped the surge in COVID cases over the summer.

However, cases have spiked since the beginning of last month. In fact, they have quickly reached higher levels of new confirmed cases than during the “first wave”.

Part of that might be tempered because testing is much more widely available and prolific this time.

Climate Stimulus

On the positive side for the CAD is something negative for the US: specifically for residents along the Gulf Coast as another hurricane takes direct aim at Louisiana.

Once again US refineries are shutting down in anticipation. 8% of US production was cut on Oct 6. Last night, around 49% of US gas production was put on hold.

We can expect Hurricane Delta to make landfall late on Friday. It is likely to affect the area for at least two days.

Oil and gas prices are likely to go up, supporting the CAD. Meanwhile, uncertainty over how much the hurricane will affect refinery production remains.

The Upcoming Data

We are expecting the pace of new job creation to slow a bit, but still have a significant drop in the unemployment rate.

Most important for the outlook, expectations are for unemployment to drop below the two-digit mark.

Canada’s job recovery hasn’t been as fast as in their southern neighbor. This is likely attributable to longer lockdowns (and starting the virus cycle delayed by about a month).

Additionally, controversy over the budget for the last few weeks might have impacted hiring. There is also typically an increase in hiring around this period in anticipation of holiday shopping, which likely won’t materialize due to COVID.

What We Are Looking For

Projections indicate that Canada will have created 156.6K net new jobs in September. This is a significant decrease in the pace from August which saw 245.8K created.

The result would bring the unemployment rate down to 9.7% compared to 10.2% in the prior month.

If the data meets expectations, it would be the slowest pace in job creation since the start of the pandemic recovery.

Since the start of COVID, Canada has lost around 3.0M jobs. Since then, around 1.86M jobs have been created, or around a 62% recovery over the last four months.

As for the unemployment rate, it’s still significantly higher than the 8.7% maximum recorded in the worst moment of the 2008 crisis.

The trajectory of the CAD is likely to be driven by crude expectations in the short term. Unless Canadian authorities start talking about lockdowns, as a peak in cases during the “second wave” has not yet been seen.