Canadian dollar falls after jobs shock as strong US payrolls boost dollar

Investing.com -- The Canadian dollar weakened on Friday after a sharp drop in domestic employment contrasted with a stronger-than-expected U.S. jobs report, pushing the U.S. dollar higher and putting an end to the loonie’s recent run of gains.

USD/CAD was around 1.3862, up about 0.5% on the day, according to the latest market reading. The move came after the pair had traded below 1.38 earlier in the session, marking a sharp reversal as investors digested the divergent labour-market reports.

Canada’s economy lost 41,700 jobs in August, Statistics Canada data showed, compared with expectations for an increase of about 15,000. The unemployment rate nevertheless held at 6.4%, while the employment rate slipped 0.1 percentage point to 60.8%.

"The sharp decline in labor market puts pressure on the Canadian dollar, and this pressure could continue over the next few weeks, simply because the latest labor data now makes it harder for the Bank of Canada to justify a more hawkish stance. This is especially true with employment falling and wage growth slowing," said Alex Tsepaev, Chief Strategy Officer of B2PRIME Group.

"At the same time, I believe the fact that the US jobs report came in strong will increase the chances for the Fed to keep rates higher for a longer period. And this is the difference in rate expectations that is supportive of the US dollar and weakens the Canadian dollar," he added.

The details pointed to a broader loss of momentum. Employment fell by 19,000 among young people and by 16,000 among core-aged workers. Services-producing industries shed jobs, while manufacturing added 22,000 positions. Average hourly wages rose 2% from a year earlier, slowing from 2.8% in July.

The Canadian report came alongside a much stronger U.S. labour-market reading. U.S. employers added 162,000 jobs in August, while the unemployment rate held at 4.1%, reinforcing expectations that the Federal Reserve may have less urgency to ease policy.

The divergence between the two economies is significant for the Canadian dollar. A weakening Canadian labour market could give the Bank of Canada more room to keep policy accommodative, while resilient U.S. employment supports the case for the Federal Reserve to remain cautious on rate cuts.

The loonie had entered Friday on stronger footing after gaining in recent sessions as the U.S. dollar weakened and oil prices supported commodity-linked currencies. The employment data abruptly shifted the focus toward the relative strength of the two economies.

Canada’s jobs report also offered a fresh warning for the economy as new U.S. tariffs begin to affect trade-sensitive industries. Statistics Canada said industries dependent on U.S. demand for exports continue to face an uncertain economic environment, with the new tariffs adding to those risks.

You May Also Be Interested In

• Anthropic discloses fourth AI hacking incident missed in earlier review
• Piper Sandler lists 5 chip stocks to buy
• Macy’s falls despite beating estimates on weak revenue guidance