Why are surging US jobs and falling domestic employment dealing the Canadian Dollar a double blow?

• A 0.78% gain takes USD/CAD to around 1.4120 on Friday as employment reports paint contrasting pictures.
• Against expectations of 65K, the United States economy creates a much stronger 165K jobs in October.
• An unexpected loss of 4.7K jobs accompanies a rise in Canada's Unemployment Rate to 6.7%.

Bullish momentum in USD/CAD gathers pace on Friday, with the pair up 0.78% at around 1.4120 at the time of writing. Better-than-forecast employment data from the United States (US) lift the US Dollar (USD), whereas weak Canadian labour figures put pressure on the Canadian Dollar (CAD). Released simultaneously, the reports underscore a marked divergence in the two countries' labour markets, adding impetus to the pair's advance.

October Nonfarm Payrolls (NFP) rose by 165K, well above the market forecast of 65K, the US Bureau of Labor Statistics (BLS) said on Friday. Upward revisions also lifted September's reading from the previously reported 29K to 60K and August's figure from 133K to 186K. Together, these adjustments added 84K jobs to earlier estimates, lending further weight to evidence of a resilient US labour market. Meanwhile, the US Unemployment Rate eased from 4.2% in September to 4.1% in October.

With employment outperforming forecasts, expectations are supported that the Federal Reserve (Fed) could keep monetary policy restrictive or consider additional interest rate increases if economic conditions remain resilient. Markets now assign a nearly 80% probability to a 25-basis-point interest rate hike in December, according to the CME FedWatch tool, compared with around 70% a day earlier. The repricing offers further backing to the US Dollar. At the time of press, the US Dollar Index (DXY) is trading around 102.35, having advanced 0.74% on Friday.

By contrast, the Canadian labour market shows substantially greater weakness. Rather than the 13.6K increase anticipated by markets, October brought an unexpected decline of 4.7K jobs, Statistics Canada reported. That fall was less severe than September's sizeable 68.3K job loss. However, the Unemployment Rate rose from 6.5% to 6.7%, contrary to forecasts that it would remain unchanged.

Over the past three months, total job losses in Canada have reached 114.7K. The cumulative decline underscores continuing labour market weakness as uncertainty over US trade tariffs and their effect on recruitment persists.

For the Bank of Canada (BoC), the weak readings make the outlook more complicated following its October 28 benchmark interest rate increase, its first in more than three years. If economic activity continues to face pressure, the ongoing employment deterioration could prompt policymakers to proceed more cautiously with further monetary tightening.

The differing employment outcomes therefore strengthen the divergence between expectations for Fed and BoC monetary policy, lending USD/CAD further support. With US labour conditions stronger and Canadian employment weakening, the US Dollar could retain an advantage over its Canadian counterpart.

USD/CAD technical analysis: can the rally clear resistance?

Immediate resistance confronts USD/CAD on the four-hour chart, where the pair trades at 1.4119, just below the 200-period simple moving average (SMA) at 1.4120. Although price has advanced strongly from support at the 100-period SMA (EMA) at 1.4035, a tight band of overhead horizontal barriers at 1.4130 and 1.4150 leaves the near-term outlook cautious. Having climbed into overbought territory near 77, the Relative Strength Index (14) suggests that upward momentum may be overstretched. A corrective pullback remains a risk while the pair stays beneath the 200-period SMA.

A move higher would first encounter the 200-period SMA at 1.4120 before testing horizontal resistance at 1.4130 and 1.4150; beyond these levels, 1.4200 presents a more distant hurdle. If the pair retreats, the recent trading zone around 1.4119 is the first area to monitor. More substantial support lies at the horizontal base near 1.4070, followed by the 100-period SMA at 1.4035, which previously attracted buyers. A return towards this support cluster would indicate fading momentum in the current rally.

(The technical analysis of this story was written with the help of an AI tool. Know more.)