Canada’s net employment gain today was always going to be negative after public health measures tightened in key provinces. In Ontario, a province-wide stay-at-home order was implemented on April 8th, which set capacity limits for non-essential businesses, while in British Columbia, “circuit breaker” restrictions were implemented as of March 30th.
These restrictions resulted in the closure of hospitality and service sector activity. Meanwhile, in Quebec, stricter measures on various business activities and an extension of curfews were put in place. While the magnitude of the job losses at 207,100 was greater than the 150,000 expected, the fact that Canada’s labour market unwound recent gains didn’t come as a surprise to many. The concentration of the job losses both geographically and sectorally came as no surprise either, with most of the job losses occurring in lockdown sensitive industries such as accommodation and food services along with retail trade. Ontario and British Columbia also witnessed the largest damage to their labour markets, for the obvious reasons of tighter lockdown conditions.
In this regard, the recent labour market data doesn’t change the structural backdrop for the Canadian economic recovery.
Job losses suffered in April are likely to be recouped once public health measures are eased in the coming months, placing the emphasis on the distribution of vaccines for the economic recovery and subsequent Bank of Canada policy normalisation. Today’s labour market data won’t derail the BoC’s plans, with QE tapering expected to continue at a quarterly pace of C$1bn ahead of our expectation of rate lift-off in H2 2022.
The loonie retraced early losses to trade closer to yesterday’s multi-year highs upon the release, but arguably this was more to do with the slip in US jobs data than Canada’s own release.
USDCAD reverses gains as Canada’s negative net employment gain was expected, unlike the slip in US Nonfarm Payrolls
Author: Simon Harvey, Senior FX Market Analyst