Canada: Labour market is expected to stabilize in March - TDS

Analysts at TDS explain that the Canadian labour market is expected to stabilize in March, providing a contrast to the robust pace of job creation thus far in Q1.

Key Quotes

“Employment growth is expected to moderate to 5k while softer details should further undermine the headline print. This would represent the second slowest pace of job growth since July 2016 and a sharp deceleration from the current 6m average pace of 36.5k. We look for last month's surge in full-time hiring to partially correct, leading to an outperformance in part-time employment growth. Meanwhile base-effects will make it challenging for wage growth to push higher from the current 1.1% y/y rate. The unemployment rate is expected to rise to 6.7%, reflecting a modest increase in labour force participation.”

“While a broadly downbeat employment report augers well for the Bank of Canada’s cautious stance, market reaction will be determined by the competing nonfarm payrolls report south of the border. Here we expect a slightly below-consensus print due largely to adverse weather during the survey period.”

“Foreign Exchange

·         As usual, the dual release of the US and Canadian employment report will muddy the response to USDCAD. The balance of risks is for the consolidation in USDCAD to persist. We look for a modest pickup on the US employment side, which will also have to compete with headlines from the US-China summit. The market is also leaning for a softish number on the US side, given the tilt in the forecast estimates. This increases the asymmetries to the release with the USD likely to rally on a very healthy number (+210k), but we expect little excitement on a number close to consensus or below.

·         For CAD, the Canadian employment report will likely complicate matters since we and the market are looking for a stabilization from the outsized gains in employment over the past few months. Still, a number close to expectations could probably lead to further consolidation in USDCAD, as positioning and our HFFV model point to an overhang of stale USD longs. Regardless of the data, this backdrop leaves us looking to fade USDCAD strength ahead of 1.35 and look for a correction back to 1.33 over the coming weeks.”