The Canadian Dollar (CAD) strengthened against the US Dollar (USD) on Friday, reversing a three-day losing streak as stronger-than-expected labor market data lifted investor sentiment and offset recent USD strength.
At the time of writing, USD/CAD is trading around 1.3990, down 0.20% on the day, retreating from Thursday’s six-month high near 1.4030 following the release of Canada’s September Labour Force Survey.
Canada’s labor market posts strong rebound
According to Statistics Canada, the economy added 60.4K jobs in September, far surpassing market expectations of just 5K and recovering from August’s 65.5K decline. The unemployment rate held steady at 7.1%, defying forecasts for an uptick to 7.2%, while average hourly wages increased 3.6% year-on-year, in line with the previous month’s reading.
Although wage growth remains modest, the overall labor market improvement reduces pressure on the Bank of Canada (BoC) to ease monetary policy further in the near term. Swap market data now suggest a 57% chance of a rate cut at the BoC’s October meeting, down from 72% prior to the data release. Still, markets continue to fully price in a 25-basis-point (bps) reduction before the end of 2025.
Oil prices limit upside for the Canadian Dollar
West Texas Intermediate (WTI) crude oil prices extended their decline on Friday, slipping below the $60.00 threshold to a four-month low, down over 2% intraday. Given Canada’s significant reliance on energy exports, lower oil prices could cap the Loonie’s upside momentum in the near term.
USD rally pauses as DXY consolidates
Meanwhile, the Greenback’s recent rally showed signs of cooling, with the US Dollar Index (DXY) trading slightly weaker around 99.35. Despite hovering near two-month highs, the index appears to be consolidating after a robust performance earlier in the week and remains on track for its strongest weekly gain of the year.
