USD/CAD posts modest gains near 1.3650 amid mixed Canadian jobs data

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The USD/CAD pair posts modest gains around 1.3660 during the early European session on Monday. Traders weigh mixed Canadian January employment data. Key US labor market data will be the highlight later on Wednesday.

USD/CAD trades with mild gains near 1.3660 in Monday’s early European session.
Fed officials send diverging signals for rate cuts.
Canada unexpectedly lost 24,800 jobs in January, but the Unemployment Rate dipped to a 16-month ‌low of 6.5%.

Federal Reserve (Fed) Vice Chair Philip Jefferson stated on Friday that current interest rates are "roughly in the range of neutral," with the job market stabilizing and policy well-positioned to handle risks, emphasizing that future actions will be data-dependent. Meanwhile, San Francisco Fed President Mary Daly said that she thinks one or two more interest rate cuts may be needed to address the weakening labor market.

Traders will take more cues from the speeches from Fed officials later on Monday, including Christopher Waller, Stephen Miran and Raphael Bostic. Any dovish comments from policymakers could weigh on the Greenback against the CAD in the near term.

The attention will shift to the US January employment report on Wednesday for some hints about the Fed's monetary policy path. The report was delayed from last week due to a four-day partial government shutdown that ended earlier in February. Markets forecast the US economy will add 70,000 jobs in January, while the Unemployment Rate is projected to remain unchanged at 4.4% during the same period.

On the Loonie front, Statistics Canada reported on Friday that Canada unexpectedly lost 24,800 jobs in January, but the losses were all part-time. However, the Unemployment Rate in Canada fell to 6.5%, the lowest since September 2024, better than the expectations of 6.8%. This report has reduced the downside risk to Canada’s growth and policy outlook, narrowing expectations for aggressive Bank of Canada (BoC) easing. This, in turn, could underpin the CAD and act as a headwind for the pair.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

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.

How do the decisions of the Bank of Canada impact 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.

How does the price of Oil impact the Canadian Dollar?

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.

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

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.

How does economic data influence the value of 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.