Canadian Dollar Strengthens Amid Strong Jobs Data

The Canadian dollar (CAD) surged after the release of robust employment figures, highlighting a growing divergence between Canada’s labor market and the softer U.S. employment trends. According to Scotiabank’s Chief FX Strategists, Shaun Osborne and Eric Theoret, Friday’s report signals a potential turning point for the CAD after months of muted performance influenced by trade tensions.

The report showed that employment gains were significant, though analysts note they were primarily driven by the number of jobs added rather than overall quality. Despite modest growth in total hours worked, the labor market remains resilient, supported by a sharp drop in the unemployment rate, elevated wage increases, and full-time job gains averaging 26,000 per month over the past three months. These trends are a positive indicator of underlying economic strength.

Market Expectations Shift Toward BoC Tightening

The strong data has prompted markets to adjust expectations for central bank policy. Investors now anticipate the Bank of Canada (BoC) may begin a tightening cycle later next year, narrowing the interest rate gap with the U.S. Federal Reserve. Scotiabank projects a scenario with 100 basis points of Fed cuts combined with 50 basis points of BoC tightening, reducing the current policy spread from 175 basis points to just 25. This adjustment supports CAD gains and provides a buffer against minor pullbacks.

Friday marked the CAD’s largest single-day rebound since April, trading near Scotiabank’s fair value estimate of 1.3801. Strategists suggest this level could act as a key floor for the currency in the near term.

USD Faces Technical Pressure

Meanwhile, the U.S. dollar (USD) continues to experience selling pressure, breaking the mid-year bullish trend. Spot USD fell below the 50% retracement level of the June–November rally at 1.3840, with potential downside reaching the mid-1.37s, supported by historical lows. Short-term technical indicators point to continued USD weakness, while resistance is observed in the 1.3975–1.4025 range, reflecting barriers to recovery.

Outlook

Overall, strong Canadian employment data and narrowing policy expectations are likely to keep the CAD well-supported. Conversely, the USD remains vulnerable to further declines, creating opportunities for traders watching the USD/CAD currency pair.

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