USD/CAD steadies near monthly highs as markets await US NFP and Canada jobs data

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The Canadian Dollar (CAD) remains on the defensive against the US Dollar (USD) on Thursday, pressured by broad-based Greenback strength. At the time of writing, USD/CAD trades around 1.3875, hovering near its highest level since December 5.

USD/CAD hovers near a one-month high as broad US Dollar strength keeps the Loonie on the back foot.
A rebound in Oil prices limits upside in the pair, offering some support to the Canadian Dollar.
Attention shifts to US Nonfarm Payrolls and Canada’s labour-market data due on Friday.

However, the pair lacks strong follow-through buying as a rebound in Oil prices lends some support to the Loonie, given Canada’s status as a major crude exporter. West Texas Intermediate (WTI) trades around $57.22, up nearly 1.78% after coming under pressure earlier this week amid market reaction to recent US military action in Venezuela and expanding US oversight of Venezuelan Oil exports.

The US Dollar extends its advance after data released earlier in the day showed Initial Jobless Claims rose modestly to 208,000 in the week ended January 3, slightly below market expectations of 210,000 and up from the previous week’s revised reading of 200,000.

Continuing Jobless Claims increased to 1.914 million from 1.858 million, while the four-week moving average of Initial Claims eased to 211,750 from 219,000.

The main highlight came from trade data. Figures from the Bureau of Economic Analysis and the US Census Bureau showed the Goods and Services Trade deficit narrowed sharply to $29.4 billion in October, well below forecasts of $58.9 billion and down from September’s revised $48.1 billion shortfall.

Traders now look ahead to Friday’s US Nonfarm Payrolls (NFP) report. Economists forecast payrolls to rise by 60,000 in January, following a 64,000 increase in the prior month. A softer-than-expected reading would likely reinforce expectations for further Federal Reserve (Fed) easing, while a stronger print could temper rate-cut bets. Markets are currently pricing in around two Fed rate cuts this year.

In Canada, the economic calendar remains relatively light. Data released earlier showed Canada’s trade balance swung to a deficit of C$0.58 billion in October from a C$0.24 billion surplus in September, though the shortfall was smaller than market expectations for a C$1.4 billion deficit.

Attention now turns to Friday’s Canadian labour-market report. Net Change in Employment is forecast to show a modest decline of 5,000 jobs in December, following a strong 53,600 increase in November.

On the monetary policy front, markets widely expect the Bank of Canada (BoC) to keep interest rates unchanged through much of 2026.

Bank of Canada FAQs

What is the Bank of Canada and how does it influence the Canadian Dollar?

The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.

What is Quantitative Easing (QE) and how does it affect the Canadian Dollar?

In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.

What is Quantitative tightening (QT) and how does it affect the Canadian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.