2 Ways To Trade USD/CAD On September's Jobs Report

On Friday, the U.S. Bureau of Labor Statistics is set to release its September Non-Farm Payrolls report. Simultaneously, the Canadian version of this set of employment data will also be released. While the U.S. report normally takes pre-eminence over the Canadian report, investors might break from that pattern this time.

Friday's report comes on the heels of a landmark trade agreement that was reached over the weekend to replace the 25-year old North American Free Trade Agreement (NAFTA). The revised deal is to be known as the United States, Mexico and Canada Agreement (USMCA). The USMCA is expected to rebalance the free trade status of the three participating countries by addressing some of the misgivings that the Trump administration had with NAFTA. While the U.S. and Mexico were able to come to an agreement several weeks ago, negotiations with Canada dragged on. Eventually, a compromise was reached, granting U.S. farmers improved access to Canada’s dairy market and leaving the Canadians with the preservation of the key dispute-resolution system.

The impact on this new agreement on the currency markets was almost immediate, despite the deal still pending approval from lawmakers on both sides. The USD/CAD kicked off the trading week with a significant gap downward and traded at 4-month lows for most of Monday. The upcoming NFP data will, therefore, comes at a time when there is a lot of focus on the currency pair in the FX market.

Tradable Scenarios

The currency pair of choice in trading the U.S. Non-Farm Payrolls report has traditionally been the USD/JPY. However, an opportunity to trade the USD/CAD may present itself if there is conflict in the numbers on each side of the border. In other words, the reports have to be bad for one currency and good for the other, which would send the USD and the CAD in opposite directions. With that said, here are two possible trade scenarios:

Scenario 1:

• If: A rise in unemployment and less-than-expected non-farm job additions in the U.S. is met by a fall in unemployment and more-than-expected job creation in Canada. 
• Then: You would then look to short the USD/CAD.

Scenario 2:

• If: A fall in unemployment and more-than-expected non-farm job additions in the U.S. is met by a rise in unemployment and less-than-expected job growth in Canada.
• Then: You would then expect to go long on the USD/CAD.

Any other scenario that presents itself would not produce the needed conflict that would see each currency moving in opposite directions.

Of course, it must be noted that the trade specifics are far more complicated than has been stated here. For instance, the degree to which the actual numbers deviate from the consensus figures could play a role in determining how volatile the USD/CAD will be on the day. The scenarios painted above would only produce the possible fundamental triggers that would then lead a trader to seek the specific entry and exit points required for prosecuting such trades successfully.

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