As the February labor market data is set to be published, the CAD market is waiting with bated breath to see how it will impact the Loonie. Economists at Commerzbank have analyzed the potential outcomes of the reports and what they could mean for the CAD market.
The Canadian labor market report is due to publish at the same time as the US, which could impact the Loonie’s movements. However, analysts believe that the US data is likely to be more decisive for the USD/CAD exchange rate than the Canadian labor market report.
Commerzbank predicts that the Loonie is only likely to receive moderate support from a renewed strong Canadian labor market report if the US data is equally strong. However, it may benefit more against the EUR.
In the case of a combination of stronger-than-expected US data and surprisingly weak labor market data from Canada, the Loonie might depreciate further against USD. But, rather than going through all the possible outcomes, let us analyze the significance of labor market data and how employment figures impact the CAD market.
The labor market is one of the most critical components of economic health, as employment has a direct impact on consumer behavior, which can cause fluctuations in the currency market. In Canada, the labor market is always closely watched by the Bank of Canada, as it is often used to determine interest rate decisions. Therefore, a strong labor market report is typically bullish for CAD, and conversely, a weak labor market report is often bearish for the Loonie.
In recent years, the Canadian labor market has been steadily improving, contributing to the CAD’s strength. Since the beginning of 2021, Canada has added over 300,000 jobs to its economy. Moreover, the unemployment rate has dropped from 9.4% in May 2020 to 8.2% in February 2021.
However, the pandemic has had a considerable impact on the Canadian labor market, causing significant fluctuations in employment figures. Therefore, analysts remain cautious about the future of the CAD as labor market reports can change quickly and drastically, especially during uncertain times.
On the other hand, any significant employment figures in the US have a direct effect on the USD/CAD exchange rate. Being Canada’s largest trading partner, any significant labor market data releases from the US can cause fluctuations in the CAD market. Therefore, the US Non-farm Payrolls report, which is due to be released shortly, is highly anticipated among currency traders.
In summary, the Canadian labor market report is being closely monitored, but whether it will impact the CAD market depends on how it compares to the US data. A strong Canadian labor market report that’s in line with strong US data is unlikely to cause a big impact, but it may support the CAD more against the EUR. Meanwhile, weak Canadian labor market data coupled with strong US data could lead the Loonie to depreciate even further against the USD.
Therefore, it’s crucial to keep abreast of employment figures in both countries to understand how they could impact the CAD market. The pandemic has undoubtedly made the labor market highly unpredictable, but with the vaccine rollout underway, hopes for a more stable labor market are on the horizon. Till then, analysts recommend closely studying the data releases and keeping a close eye on the Loonie’s movements.
