Canadian Dollar Loses Ground Against US Dollar as Labor Markets Stumble

• The Canadian Dollar declined 0.65% against the US Dollar on Friday.
• Weaker-than-anticipated US employment data drove investors toward the Dollar as a safe haven.
• Canadian employment figures showed concerning contraction in the labor market, adding pressure on the Loonie.

The Canadian Dollar (CAD) weakened on Friday, marking its fifth consecutive day of losses against the US Dollar (USD) after employment reports from both Canada and the United States showed economic challenges stemming from escalating global trade tensions and tariff policies.

Employment metrics for both North American nations deteriorated on Friday as global trade friction continues to affect economic performance on both sides of the border. US Nonfarm Payrolls (NFP) significantly missed expectations, while Canadian hiring data revealed a substantial contraction in August, triggering renewed recession concerns and increased expectations for central bank rate cuts in both countries.

Key market movers: Disappointing employment data weighs on Canadian Dollar

• Canada reported a net loss of 65.5K jobs in August, substantially worse than analysts' expectations for a recovery to 7.5K.
• US employment figures showed just 22K jobs added, falling well short of the 75K forecast.
• The Canadian Dollar reversed early session gains on Friday, declining approximately two-thirds of one percent from high to low, extending its losing streak against the US Dollar to five consecutive sessions.
• USD/CAD pushed above 1.3840 as risk-aversion flows strengthened the US Dollar broadly.
• With minimal Canadian economic releases scheduled for next week, key US inflation data will likely drive market direction.

Technical analysis: Canadian Dollar outlook

The sharp reversal in the Canadian Dollar on Friday, driven by deteriorating labor market conditions, has diminished prospects for a near-term CAD recovery. USD/CAD has returned to the 1.3850 region after completing a technical rebound from the 50-day Exponential Moving Average (EMA) near 1.3780.

The current USD strength is pushing the pair toward the 200-day EMA near 1.3870, with momentum suggesting a potential test of the recent high at 1.3925. According to recent market data, the USD/CAD exchange rate stands at 1.3949 as of October 6, 2025, representing a slight 0.04% decline from the previous session.

USD/CAD daily chart analysis

Note: Chart visualization available on professional trading platforms

Canadian Dollar: Frequently Asked Questions

What key factors drive the Canadian Dollar?

The key factors influencing the Canadian Dollar (CAD) include interest rates set by the Bank of Canada (BoC), oil prices (Canada's largest export), economic health indicators, inflation rates, and trade balance figures. Market sentiment—whether investors favor risk assets or seek safe havens—also affects CAD, with risk-on sentiment generally benefiting the Canadian Dollar. Additionally, economic conditions in the United States, Canada's largest trading partner, significantly impact CAD performance.

How do the Bank of Canada's decisions impact the Canadian Dollar?

The Bank of Canada (BoC) influences the Canadian Dollar by setting interbank lending rates, which affects broader interest rates throughout the economy. The BoC's primary objective is maintaining inflation between 1-3% by adjusting interest rates. Higher relative interest rates typically support the CAD. The central bank can also employ quantitative easing and tightening to influence credit conditions, with easing generally negative for CAD and tightening positive.

How does the price of Oil impact the Canadian Dollar?

Oil prices directly influence the Canadian Dollar as petroleum represents Canada's largest export. Rising oil prices generally strengthen the CAD due to increased aggregate demand for the currency. Conversely, falling oil prices typically pressure the Canadian Dollar. Higher oil prices also tend to improve Canada's trade balance, providing additional support for the currency.

How does inflation data impact the value of the Canadian Dollar?

While inflation traditionally erodes currency value, in modern financial markets, higher inflation often leads central banks to raise interest rates, attracting international capital seeking better returns. This increased capital inflow boosts demand for the Canadian Dollar. Therefore, inflation data that suggests potential interest rate adjustments can significantly impact CAD valuation.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic indicators assess economic health and can substantially impact the Canadian Dollar. Key metrics include GDP, manufacturing and services PMIs, employment figures, and consumer sentiment surveys. A robust economy attracts foreign investment and may prompt the Bank of Canada to raise interest rates, strengthening the CAD. Conversely, weak economic data typically pressures the Canadian Dollar downward.