Canadian jobs preview: The odds are stacked against the C$

• After a loss in jobs in March, minimal changes are projected for April.
• Wage growth may steal the show but also here, Canada may have hit its limits.
• The Canadian dollar is already under pressure, and it could intensify now.

Has rapid job growth come to an end in Canada? Loonie traders will get an answer, and USD/CAD will react solely to this release, as the US Non-Farm Payrolls has already been published.

The nation lost 7.2K positions in April after a six-month-long winning streak that supported the Canadian dollar over and over again. The upcoming announcement for April is projected to show a meager increase of only 1K positions. The unemployment rate is forecast to remain unchanged at 5.8%.

The Bank of Canada's recent Business Outlook does not bode well. It showed worsening conditions in the economy. And the slowdown is not only limited to Canada as other nations are also struggling with a slowdown in growth. Employment tends to lag economic growth, but Canada's jittery changes in jobs mean it could be the first to witness a cooldown also in hiring. 

Looking closer at the winning streak mentioned earlier, the upbeat numbers underpin the notion that the job growth was rapid and we now see a substantial setback. Canada gained 94.1K jobs in November, equivalent to around 800K in the US. It enjoyed increases of 66.8K in January and 55.9K in February while shedding only 7.2K positions in March. These nearly back-to-back leaps are unsustainable.

Overall, there are good reasons to believe that the modest expectations of +1K are, at best, spot on, if not optimistic. Low expectations can lead to upside surprises, but in this case, they may not be low enough.

Why USD/CAD may rise

A modest increase in positions, as forecast, or a second consecutive month of losses, may weigh on the loonie that is already in a vulnerable position. 

The US-Sino trade talks have hit a major roadblock on alleged Chinese backtracking of previous commitments. Trump followed by preparing new tariffs on the world's second-largest economy. Sentiment is already sour and the risk-off mood is not only weighing on stocks but also on the oil, Canada's main export.

The loonie also continues suffering from the recent dovish shift in the BOC's stance, and political uncertainty ahead of Canada's general elections due later this year.

All in all, the trend is risk-averse, favoring the US dollar against the C$ and another downbeat economic figure may extend the trend, pushing USD/CAD further. 

What could lift the loonie?

For the tables to turn in favor of the loonie, Canada would probably need to surprise with an increase of 15K or higher. Another savior could be another acceleration in wage growth. Similar to jobs, changes in salaries are erratic, but recent months have seen significant improvement. 

Pay was up 2.32% in March 2019 compared with March 2018. The pace is gradually picking up after hitting a low of 1.7% late last year. Nevertheless, it is hard to foresee another increase in wages without an accompanying rise in wages. That kind of situation is likely when an economy nears full employment. According to the BOC, we are not there yet. 

To sum up, the odds are stacked against the Canadian dollar coming into this jobs report. A significant surprise in employment and wages would be necessary to turn USD/CAD in favor of the C$, but the chances for a downside surprise are higher.