- Canada is expected to show moderate job growth and a higher Unemployment Rate in July.
- These figures are unlikely to alter the BoC’s wait-and-see stance.
- The Canadian Dollar is regaining lost ground against a weaker US Dollar.
Statistics Canada will release July’s Canadian Labour Force Survey report on Friday. The market consensus anticipates some moderation in job creation, with the Unemployment Rate increasing. Unless there is a big surprise, these numbers are unlikely to alter the Bank of Canada’s (BoC) wait-and-see stance on interest rates.
The BoC met market expectations and left its benchmark interest rates unchanged at 2.75% for the third consecutive meeting in July, after having slashed them from 5% since May 2024.
The Bank’s Governor, Tiff Macklem, observed the strength of the Canadian economy in the face of global trade uncertainty, adding that the bank will remain vigilant to assess the impact of US tariffs on Canada’s economic growth.
Previous data released by Canada’s statistics office revealed an unexpected 83,100 net increase in employment in June, beating market expectations of a flat reading. Likewise, the Unemployment Rate declined to 6.9% from the previous 7% instead of increasing to 7.1% as market analysts had forecasted.
Later in July, Canada’s Gross Domestic Product data showed that the economy contracted in May, but the rebound observed in some sectors suggests that the GDP might show a slight growth in Q2, which, in the face of the heating inflationary trends, would endorse the BoC’s “patience” message.
What can we expect from the next Canadian Unemployment Rate print?
According to the market’s consensus, the Canadian economy continued creating jobs in July, although at a slower pace. The Net Change in Employment is seen moderating to 13,500, well below June’s 83,100 new jobs, while the Unemployment Rate is expected to return to 7% level after retreating to 6.9% in June.
The statement of the Bank of Canada’s latest monetary policy meeting confirms that the US economy is showing some resilience despite the uncertain trade relationship with the US, and that the employment creation has held up even though the sectors affected by trade have experienced some weakening.
The bank observed the growing unemployment trend and the softening wage inflation but called for a careful approach towards monetary policy before the impact of tariffs on employment, business investment, and household spending is evidenced.
When is the Canada Unemployment Rate released, and how could it affect USD/CAD?
The Canadian Unemployment Rate for July, together with the Labour Force Survey numbers, will be released at 12:30 GMT.
The Bank of Canada left the door open for further monetary easing before the end of the year, but hopes of a September rate cut remain relatively low so far, and Friday’s data is unlikely to alter that consensus unless the final reading shows a negative surprise.
The market expectations suggest that the Canadian economy continues to create jobs despite the uncertain global trade scenario, and recent Consumer Price Index (CPI) figures revealed that price pressures are increasing, which strengthens the case for maintaining the status quo in the next monetary policy meeting.
The next BoC rate decision on September 17, however, is still far away, and Friday’s employment report is unlikely to be decisive for the bank’s monetary policy plans. More jobs data and the Q2 GDP will be released ahead of the BoC’s meeting, and the bank is likely to wait for further input for a better-founded assessment of the impact of tariffs before taking monetary policy decisions.
In currency markets, the Canadian Dollar reversal from late June and early July lows seems to have found significant support, as the USD/CAD featured an impulsive pullback from two-month highs near 1.3900 following a grim US Nonfarm Payrolls report last week.
The USD/CAD is holding at a previous support area above 1.3700, with upside attempts limited so far. With investors ramping up their bets for a Federal Reserve (Fed) rate cut in September, another positive surprise on Canadian employment would create a certain monetary policy divergence in favour of the Loonie.
Technical indicators are showing a growing bearish bias, with the 4-hour Relative Strength Index treading into negative territory below 50, and correlation studies suggesting scope for a deeper reversal, as the US Dollar Index tests fresh lows at the 98.00 area.
Below the support at the 1.3700 round level and the July 28 low of 1.3690, the next target would be the July 23 low at 1.3580 and the long-term lows at 1.3540 hit on June 16. On the upside, immediate support is at the August 5 high of 1.3810 ahead of the 1.3875-1.3885 area (May 22, August 1 high). A confirmation above here would cancel the bearish view and bring the May 20 high of 1.3965 into focus.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.