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6 May 2016
CAD: Forecasting an addition of 5k jobs in April - TDS
Research Team at TDS, suggests that after the addition of an outsized 41k jobs for Canada in March—which is more than a one standard deviation increase in an already volatile series—there is a natural tendency to expect a pullback in the subsequent month.
Key Quotes
“However, a closer examination of historical examples of outsized gains that are led by full-time hiring in the service sector (as was the case in March) typically reveals another month of relative strength. We therefore are forecasting the addition of 5k jobs in April and have identified an upside risk. Given that the threshold for an uptick in the unemployment rate is very low (to three decimal places, March’s unemployment rate was 7.128%) we expect a modest gain in the labour force will push the unemployment rate point higher to 7.2%.
Setting aside the intense volatility in monthly changes in employment still points to a subdued backdrop for the labour market. Note that a large gain rolling out of the 6-month moving average will pull this metric lower to 5k in April despite the forecasted gain in the month.
Canadian data surprises have turned lower since peaking at the start of Q2. The weak March export figures underscored this shift given soft tone of US growth and sharp decline in USD/CAD since the start of the year. While our forecast points to a solid employment number, we suspect that valuation concerns, technical pressures and market positioning will limit downside for USD/CAD on a solid number. Our high frequency model points to a move back to 1.30. Key level watch near-term is a break above 1.2850, which is likely to push back to a 1.30 to 1.35 range.
Meanwhile, we also think markets will take their cue from the US NFP report. Risk appetite has waned over the past few sessions and we continue to think the conditions for carry trades remain unfavorable. A decent US NFP print could increase scope that June and July are live Fed meetings, forcing a consolidation in market sentiment.”
Key Quotes
“However, a closer examination of historical examples of outsized gains that are led by full-time hiring in the service sector (as was the case in March) typically reveals another month of relative strength. We therefore are forecasting the addition of 5k jobs in April and have identified an upside risk. Given that the threshold for an uptick in the unemployment rate is very low (to three decimal places, March’s unemployment rate was 7.128%) we expect a modest gain in the labour force will push the unemployment rate point higher to 7.2%.
Setting aside the intense volatility in monthly changes in employment still points to a subdued backdrop for the labour market. Note that a large gain rolling out of the 6-month moving average will pull this metric lower to 5k in April despite the forecasted gain in the month.
Canadian data surprises have turned lower since peaking at the start of Q2. The weak March export figures underscored this shift given soft tone of US growth and sharp decline in USD/CAD since the start of the year. While our forecast points to a solid employment number, we suspect that valuation concerns, technical pressures and market positioning will limit downside for USD/CAD on a solid number. Our high frequency model points to a move back to 1.30. Key level watch near-term is a break above 1.2850, which is likely to push back to a 1.30 to 1.35 range.
Meanwhile, we also think markets will take their cue from the US NFP report. Risk appetite has waned over the past few sessions and we continue to think the conditions for carry trades remain unfavorable. A decent US NFP print could increase scope that June and July are live Fed meetings, forcing a consolidation in market sentiment.”