Canada Unemployment Rate holds steady at 5.5% vs. 5.6% forecast

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The Unemployment Rate in Canada held steady at 5.5% in August, Statistics Canada reported on Friday. Net Change in Employment arrived at +39,900 following July’s decrease of 6,400.

Further details of the jobs report showed that the Participation Rate edged lower to 65.5% from 65.6%, while total hours worked rose 0.5% in August and by 2.6% annually.

“On a year-over-year basis, average hourly wages rose 4.9% (+$1.56 to $33.47) in August, following an increase of 5.0% in July,” the publication read. 

Canada jobs report market reaction

USD/CAD came under heavy bearish pressure with the immediate reaction to the Canada jobs report. As of writing, the pair was losing 0.5% on the day at 1.3615.

Canadian Dollar price today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.13% -0.17% -0.53% -0.43% 0.01% -0.61% -0.21%
EUR 0.13%   -0.05% -0.40% -0.31% 0.13% -0.48% -0.09%
GBP 0.15% 0.04%   -0.36% -0.26% 0.17% -0.45% -0.04%
CAD 0.48% 0.36% 0.34%   0.06% 0.49% -0.11% 0.28%
AUD 0.42% 0.30% 0.26% -0.13%   0.43% -0.19% 0.21%
JPY -0.01% -0.13% -0.17% -0.52% -0.43%   -0.60% -0.22%
NZD 0.62% 0.49% 0.45% 0.09% 0.19% 0.61%   0.40%
CHF 0.16% 0.08% 0.05% -0.36% -0.23% 0.20% -0.40%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 

Economic Indicator

Canada Unemployment Rate

The Unemployment Rate released by the Statistics Canada is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labor market. As a result, a rise leads to weaken the Canadian economy. Normally, a decrease of the figure is seen as positive (or bullish) for the CAD, while an increase is seen as negative or bearish.

Read more.

Next release: 10/06/2023 12:30:00 GMT

Frequency: Monthly

Source: Statistics Canada


This section below was published as a preview of the Canada jobs report at 06:00 GMT.

  • The Unemployment Rate in Canada is set to rise a tad to 5.6%, while employment is also expected to grow.
  • Strong jobs data and hot wage inflation are critical to rescuing the Canadian Dollar.
  • Weak jobs data will ramp up dovish Bank of Canada expectations after Wednesday’s pause.  

Statistics Canada is set to publish the Canadian Labor Force Survey report at 12:30 GMT on Friday. Markets are likely to see a continued slack in the Canadian labor market, justifying the Bank of Canada’s (BoC) steady interest rate decision announced on Wednesday.

Having lifted rates by 25 basis points (bps) in June and July, the Bank of Canada left the key interest rate unchanged at 5.0% at its September policy meeting. Still, the BoC kept doors ajar for more tightening should inflationary pressures persist. The central bank acknowledged the recent surge in Canadian inflation but it expressed concern about the economic outlook amidst loosening labor market conditions.

“The Governing Council decided to keep rates at 5.0% given recent evidence that excess demand in the economy is easing, and given lagged effects of monetary policy,” the BoC said in its policy statement.

The economy has lost jobs in two of the previous three months, according to Statistics Canada. Canadian Gross Domestic Product (GDP) unexpectedly shrank an annualized 0.2% in the second quarter and stagnated in July, indicating that the economy could have already entered a modest recession. Meanwhile, the annual inflation rate in the North American economy surged more than expected to 3.3% in July. The Core Consumer Price Index (CPI) stayed stubbornly high at 3.2% in July, against expectations of a 2.8% increase. 

What to expect from the next Canadian Unemployment Rate print?

The focus remains on the upcoming Canadian labor market report, especially wage inflation data, which could have a significant influence on the BoC’s next policy decision.

“Tightness in the Canadian labor market has continued to ease gradually, but wage growth remains around 4% to 5%,” the Bank said in its policy statement.

Economists are expecting Canada’s Unemployment Rate to edge a tad higher to 5.6% in August, compared with a rise to 5.5% in July. The economy is expected to add 15K jobs in the reported month after unexpectedly shedding 6.4K jobs in July. Average Hourly Wages, a figure the Bank of Canada watches closely, rose 5.0% in July from a year ago. 

About the upcoming employment data, analysts at TD Securities (TDS) said: “we look for the economy to add 20k jobs in August, slightly below the 6m trend and well below levels required to keep up with population growth, with a partial rebound in construction helping to drive the headline print as hiring intentions fade. A 20k print would leave the UE rate stable at 5.5%, while softer wage growth (-0.6pp to 4.4%) should give the report a dovish tone.”

When is August’s Canada Unemployment Rate released and how could it affect USD/CAD?

The Canadian Unemployment Rate for August, accompanied by the Labor Force Survey, will be released on Friday at 12.30 GMT. Following the BoC interest rate decision, traders look forward to the Canadian jobs data for a fresh direction in the USD/CAD pair.

If there is another job loss in August along with cooling wage inflation, it could convince markets that the BoC is done with its tightening cycle for the year. In such a case, the Canadian Dollar is likely to come under additional selling pressure. On the other hand,  higher-than-expected employment creation and sticky wage inflation could reinforce expectations of another BoC rate hike this year, rescuing the CAD from six-month lows against the US Dollar.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes key technicals to trade USD/CAD on the data release. The 14-day Relative Strength Index (RSI) indicator on the daily chart has eased from the overbought territory, justifying the pullback in USD/CAD from half-yearly highs of 1.3694. Buyers need a daily closing above the latter to extend the uptrend toward the 1.3750 psychological barrier, above which the March 24 high of 1.3804 will be put to test.”

In case, the USD/CAD correction gathers traction after the employment data, the 1.3600 round figure will be challenged. Deeper declines will target the bullish 21-day Simple Moving Average (SMA) at 1.3563.”

Canadian Dollar FAQs

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.



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