Focus on Canada’s March Employment Report

Summary:

Canada will release its March employment report this Friday, which will clarify the real impact of elevated energy prices on the domestic economy. The labor market currently shows structural divergence — the energy sector may emerge as a growth highlight, while weakness in manufacturing could exacerbate the Bank of Canada’s policy dilemma.

SELL USDCAD

EXP

TRADING

1.39045

Entry Price

1.34000

1.42000

1.39166 -0.00268 -0.19%

0.0

Pips

Flat

1.34000

Exit Price

1.39045

Entry Price

1.42000

‌Fundamentals‌

Canada’s employment report, due this Friday, will test whether high energy prices are supporting or undermining the domestic economy. Given job losses at the start of 2026, the key question is whether the economic stimulus from rising oil prices can drive hiring, particularly in resource-intensive sectors.

However, the composition of job growth is as important as the headline numbers. If employment gains are concentrated in energy extraction while manufacturing declines, this will deepen the Bank of Canada’s policy quandary: the energy sector fuels inflation, yet growth in other sectors remains subdued. As a result, the central bank is likely to remain on hold unless there is broad-based labor market recovery, keeping policy settings largely unchanged.

We expect Canada’s March employment report to rebound from the soft readings in January and February, adding approximately 20,000 jobs with the unemployment rate holding steady at 6.7%. Under current economic conditions, risks in the labor market are asymmetric — job gains are more likely than losses, and the unemployment rate may even decline. In the near term, the labor market is expected to remain stable without collapse. Vulnerabilities remain concentrated in manufacturing and trade-exposed goods sectors, while services, healthcare, energy, and the public sector continue to show relative resilience.

Ongoing impacts from U.S. tariffs, the recent surge in energy prices, and the upcoming review of the USMCA (United States-Mexico-Canada Agreement) will continue to reshape the industrial structure of employment. From a long-term structural perspective, the backdrop has fundamentally changed: net outflows of temporary residents are contributing to population contraction, and an aging workforce is reducing labor force growth. This, in turn, lowers the monthly job creation threshold needed to keep the unemployment rate stable. As a result, even modest employment growth in the coming months could still push the unemployment rate lower.

Conversely, a stabilizing labor market may prompt the Bank of Canada to shift its policy focus back toward inflation. In its previous meetings, the central bank remained in wait-and-see mode, assessing the risks of energy price shocks and persistent inflation pass-through. Policy action in April remains premature, but the upcoming Monetary Policy Report is expected to provide clearer insight into the Bank’s reaction function. We maintain our previous forecast that the Bank of Canada will hike rates in July, during the third quarter. However, the pace of any further tightening later this year will depend on the intensity and duration of pressure from energy and commodity prices.

Focus on Canada’s March Employment Report_1

‌Technical Analysis‌

USD/CAD has staged a strong rebound since early last week, supported by a double bottom formation. The pair briefly broke above its three-month and year-to-date high of 1.3966 on Tuesday before pausing. A confirmed break above the 38.2% retracement level of the 1.4790–1.3480 range at 1.3980 would signal a reversal of the downtrend from 1.4791, with the next target at the 61.8% retracement level of 1.4290.

On the other hand, despite current bullish momentum, it’s important to remember that the current price action remains part of a head-and-shoulders top pattern formed between January and March 2025. Until bearish positions are fully unwound, there remains a risk of a sharp pullback.

A confirmed break below 1.3750 would indicate rejection at 1.3980 and suggest the downtrend from 1.4790 remains intact. In that scenario, the pair would likely retest levels below 1.3420.

‌Trading Recommendation‌

‌Trade Direction‌: Sell

‌Entry Level‌: 1.3950

‌Target Level‌: 1.3400

‌Stop Loss‌: 1.4200

‌Validity‌: Until 23:55:00, May 05, 2026

‌Support Levels‌: 1.3876, 1.3756, 1.3602

‌Resistance Levels‌: 1.3980, 1.4052, 1.4142

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