USD/CAD trades firmly near 1.3900 ahead of US-Canada employment data

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The USD/CAD pair demonstrates strength near its monthly high of 1.3888 during the Asian trading session on Friday. The Loonie pair trades firmly ahead of the release of the United States (US)- Canada employment data for December.

USD/CAD clings to gains near the monthly high at 1.3888 ahead of the US-Canada labor market data for December.
The US economy is expected to have added 60K fresh workers, while the Canadian economy is seen firing 5K employees.
The impact of the US NFP data will be significant on the Fed’s monetary policy outlook.

The US Nonfarm Payrolls (NFP) report is expected to show that the economy added 60K fresh workers, slightly lower than 64K in November. The Unemployment Rate is estimated to drop to 4.5% from the prior reading of 4.6%.

Investors will pay close attention to the US official employment data as Federal Reserve (Fed) officials have signaled for months that they are more concerned about weak labor market conditions than inflation remaining above the 2% target.

In 2025, the Fed delivered three interest rate cuts of 25 basis points (bps), citing job market risks.

Ahead of the US NFP data, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles near the four-week high around 98.85.

Meanwhile, the Canadian employment report is expected to show that employers fired 5K payrolls in December after a robust hiring of 53.6K workers in November. The Unemployment Rate is seen rising to 6.6% from the previous release of 6.5%. Signs of cooling job market conditions could prompt expectations of monetary easing by the Bank of Canada (BoC) in the near term.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.