Loonie Needs Some Boost from Employment Report for a Rise

The Canadian employment report is due on Friday at 15:30 GMT, and it is anticipated that the labor market continued to expand in May. At its June 1 meeting, the Bank of Canada (BoC) became more hawkish, signalling that it may have to be cautious to combat inflation, in part due to the robust labor market.

Unemployment rate is anticipated to be steady

In accordance with market predictions, the jobless rate in Canada decreased to 5.2% and is predicted to remain the same in May. It was the lowest rate ever recorded, extending the labor market’s remarkable rebound from the Covid-19 pandemic. The employment change is expected to add 30.0K workers from 15.3K before, confirming the labour market’s expansion. A positive report would help the Canadian dollar to rise in the face of falling oil prices. Though thus far, OPEC’s agreement to pump additional petroleum to compensate for diminished Russian supply has only resulted in a moderate decline in oil futures prices.

BoC raises rates by 50 bps

The Bank of Canada lifted the target for its overnight rate by 50 basis points to 1.5% during the June meeting, in line with market forecasts, and suggested that it will increase rates further at its next decision in order to combat increasing inflation. It was the third consecutive rate increase of equal magnitude to that of the Bank’s previous meeting, increasing borrowing prices to their highest level since the beginning of the pandemic. Additionally, the central bank said that it will continue quantitative tightening measures, thereby extending the process of balance sheet reduction. The Bank indicated that it sees more chances that the elevated inflation would stay entrenched, given the economy’s excessive demand, in addition to upside risks stemming from the unpredictability of the Ukraine conflict. Inflation in Canada surged to 6.8% annually in April, significantly over the BoC’s estimate 2%, and is anticipated to rise further in the near future before declining.

Dollar/loonie appears neutral to bearish

If the employment report shows higher jobs growth and a lower unemployment rate, it might push dollar/loonie towards the 1.2450 support level ahead of the 1.2400 psychological number. Underneath these obstacles, the price could move towards the 1.2285 support, taken from the trough of October 2021.

A worse-than-expected jobs report could encourage the bulls to break to the upside of the 200-day simple moving average (SMA), which currently stands near 1.2657, meeting the 1.2710 resistance. If buying interest persists, then the market could meet the 20- and 40-day SMA at 1.2760, which are currently ready for a bearish crossover.