The Canadian Dollar (CAD) strengthens modestly against the US Dollar (USD) on Friday, with USD/CAD trading around 1.3840 during the American session. The pair is on track for its second consecutive weekly gain, supported by a softer Greenback following Thursday’s CPI-driven decline.
Weaker US consumer sentiment weighs on the Dollar
The University of Michigan’s preliminary September survey showed Consumer Sentiment falling to 55.4 from 58.2 in August, below the forecast of 58. The Consumer Expectations Index also dipped to 51.8 from 55.9, undershooting the projected 54.9.
Inflation expectations remain elevated, with the one-year outlook steady at 4.8% and the five-year measure rising to 3.9% from 3.5%. These data underscore growing household caution amid persistent long-term price concerns.
Despite a slight rebound in the US Dollar Index (DXY) to 97.75, up roughly 0.20% on the day, broader US data point to weakening labour market conditions. Nonfarm Payrolls nearly stalled in August, previous job growth was revised down by nearly 900,000 positions, the unemployment rate climbed to 4.3%, and Jobless Claims have risen. This reinforces expectations that the Federal Reserve will cut rates by 25 basis points at its September 17-18 meeting, with markets pricing in up to three additional cuts through 2025.
Fragile Canadian economic backdrop supports CAD
In Canada, the labour market remains soft. The August jobs report showed a decline of 65,000 positions, pushing the unemployment rate to 7.1%, the highest level outside the pandemic period since 2016. U.S. reciprocal tariffs are also weighing on Canadian exporters, adding pressure to business sentiment.
Economists surveyed by Reuters largely expect the Bank of Canada (BoC) to follow with a 25-basis-point rate cut on September 17, with the possibility of further easing if domestic labour market weakness persists.
USD/CAD remains sensitive to developments in both economies, with the Greenback under pressure from US consumer and labour data, while CAD support stems from soft domestic conditions and expectations of BoC policy easing.
