Canadian jobs data for June will accompany nonfarm payrolls in the United States on Friday at 12:30 GMT. The consensus is for a weaker jobs print, but the data won’t change the central bank’s forecast for a big rate hike this month, even as global recession fears take their toll. Instead, the facts suggest the commodity-dependent economy could weather a potential economic slowdown better than its major G7 partners, and Thursday’s trade data, due at 12:30 GMT, could confirm that. Therefore, only a major misfire in expectations could prolong the loonie’s slide.
A tight labor market and rising inflation expectations
Job growth likely narrowed again in Canada, with analysts estimating a lighter addition of 23.5k from May’s reading of 39.8k, which was more than double April’s low. of 15.5k. On the other hand, the unemployment rate and the participation rate are expected to remain stable at 5.1% and 63.5% respectively, indicating that the tight pool of labor supply is mainly responsible for the moderate increase in new jobs.
In support of the above argument, the latest Business Outlook Survey highlighted that most Canadian businesses are still facing labor shortages, while they need more than expected to resolve bottlenecks in supply chains. Specifically, evidence from restaurants revealed that owners capped reservations and half of tables remained empty due to lack of staff. Firms also expect inflation to remain high above 5.0% a year from now and wage growth to accelerate by an average of 5.8% this year, which would remain below the inflation if consumer prices were to moderate moderately below the current peak of 7.7%y/y. in the rest of the year.
A similar story was told by the Consumer Expectations Survey, which showed short-term inflation expectations rising from 5.1% to 6.8%, while projections of an increase in inflation. Wage growth was more conservative at 2.0%. The latter could be a sign that consumers may become more careful with their spending, as household debt to disposable income has risen to 186% lately, while household debt to GDP has fallen to 107%. .9%, although it remained in the uncomfortable zone and much higher than other Western countries. savings.
Canada could weather economic downturns better
Overall, demand conditions are still robust and the savings rate is the highest since 1996, making a triple rate hike by the Bank of Canada this month a deal-win as slowing inflation is a top priority right now. Of course, growing fears of a global economic recession are weighing on the outlook for commodity-dependent economies like Canada. However, with the war in Ukraine and pandemic jitters unabated, supply constraints could continue to fuel energy prices, supporting Canada’s public finances, as credit rating agency Fitch argues. or at least put Canada in a better position than other advanced economies.
At this point, it’s also worth mentioning that trade data is expected to show a higher surplus of C$2.4 billion in May compared to C$1.5 billion the previous month. On the other hand, the American trade balance could improve but remain negative at 84.9 billion dollars.
The question now is how the loonie will react to this week’s data. Falling oil prices triggered by recession fears sent the dollar/loonie up 1.5% on Tuesday to a new 1.5-year high at 1.3082.
Despite the thrilling rally, the pair was unable to close above the 200-week simple moving average at 1.3026, but the US Dollar may have another opportunity to breach that high and prepare for the next resistance. of 1.3175, as the employment figures could hardly change the BoC’s rate forecast this month.
Additionally, investors expect monetary policy tightening in Canada to cool sooner than in the U.S. in the near term, leading to a 50 basis point lower rate hike in September compared to the scenario of Fed 75 basis point rate hike. In the meantime, only a major data loss could prolong the loonie’s sell-off. Alternatively, if job growth extends its upward trajectory from the March lows, the dollar/loonie could look for initial support around the 1.2960 handle before encountering the 20-day SMA at 1.2915.
Note that US non-farm payrolls are released on the same day and time and some disruption in the impact of Canadian data may occur.