CAD: Setting up for employment (October) and international trade (September) - TDS

Research Team at TDS, suggests that the simultaneous release of Canada’s October employment and September international trade will be largely overshadowed by the competing nonfarm payrolls report south of the border.

Key Quotes

“However, the trade report will be closely watched by the Bank of Canada in light of the “heightened uncertainty” around the recent rebound in export activity.

Employment: The Canadian labour market is poised to take a step backwards in October with the loss of 15k jobs, reflecting a partial unwind of the outsized 67k gain from the prior month and a sharp drop in small business hiring intentions. The details of the report should show a pullback in self-employment which was responsible for 50k new jobs last month, while weaker public administration and education hiring should also weigh on the headline print. Meanwhile, the unemployment rate should push higher by 0.1pp to 7.1% due to the combination of lower employment and modest labour force growth, adding to the downbeat tone of the report.

Trade: We look for the international trade deficit to narrow from $1.94 billion to $1.70 billion in September on a solid advance in nominal exports and more modest rise in imports. Export gains should be driven by the energy sector, which is expected to continue its upward trend after bottoming out in April. On the other side of the ledger, we look for only modest growth in nominal imports which will be driven largely by prices, leaving the volumes metric little changed. Risks are skewed towards a narrower deficit on account of a stronger payback in export gains.

Foreign Exchange

For USDCAD, price action should hinge on external drivers. This leaves the focus on the US election and the October NFP report. TD expects a strong NFP report so we could see the USD start to consolidate some recent losses into the weekend. This environment could see USDCAD drift back towards the upper end of the recent mini-range. The pair has failed to make a convincing break of the 1.34 level, so we still see strong resistance near 1.3425.

Regarding the data, our forecasts are skewed to the downside, so it does lend further support our upside USDCAD bias into the release. Full-time employment growth is running at 4k on a rolling 12m basis, suggesting the labor market remains weak. The domestic recovery is crucial for the BoC’s outlook so further weakness could keep the focus on CAD.

All the same time, the trade numbers could also get some attention. We expect some improvement in the trade numbers, which could soften the blow to CAD a bit. Taken together, this makes for some messy price action tomorrow morning, but, into the home stretch of the election, we favor long exposure to USDCAD given the recent volatility in the polls.”