Canada's economy swooned in the 4th quarter with the economy shedding jobs in both October(-54K) and November (-19K). However, in December, there was a bounce back with 18K jobs gained in the economy, though that was still only the 2nd month out of the last 6 in which job growth was positive.
The forecast for January is for another positive month, with 23.3K jobs expected to be added by the economy.
That would be a positive sign for the labor market and would help bolster the economy's outlook, which should help the Canadian Dollar.
Just this week, we saw the monthly GDP report from Canada show the economy contracting in November, which followed a flat reading in October.
Therefore, if the improvement in the labor market seen in December picks up in January, we should expect to see growth rebounding as well.
The unemployment rate meanwhile had been climbing in the 2nd half of 2011, and has broken the downtrend that had been apparent through the mid-2009 to mid-2011.
The consensus forecast is for the unemployment rate to remain at 7.5%.
USD/CAD Trades Below Parity
Looking at the USD/CAD we see a persistent downtrend over the last 2-3 weeks which has pushed the pair below the parity level, and today's session saw that level tested and act as resistance. If the Canadian Dollar can hold below this key psychological level it could imply further strength for the CAD.
Support now lies at the 0.9965 area, and what happens with the employment report in Canada can be a catalyst for the pair's behaviour. Now, we do have to take note of the NFP report which will be coming out an hour and a half after the Canada release and therefore may drive general risk sentiment in currency markets, but overall, with the Canadian economy at a key juncture, a positive jobs report will help put the wind behind the CAD's sails, giving it a chance to push below its recent lows for this week.
A negative report meanwhile (and a NFP report that increases risk aversion) would give us the opposite effect, and could solidify the 0.9965 area as a key support. A move back above the parity level and then a hold of that level could begin to turn the trend in the pair we have seen January.
Nick Nasad is an analyst, educator, and trader; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.