The Canadian dollar (CAD) rose sharply on Friday, rising half a percent against the U.S. dollar (USD) after January labor market data showed the unemployment rate fell to 6.5%, the lowest reading since September 2024. The Loonie found support despite a 25,000 drop in headline employment as a edged decline in labor force participation pushed the unemployment rate lower. USD/CAD returned to 1.3634, capping gains accumulated in recent weeks.
Labor market data was mixed. The unemployment rate fell by three-tenths of a percentage point to 6.5%, but the improvement was mainly due to 94,000 people leaving the labor market rather than job creation. The labor force participation rate fell by four tenths to 65.0%, the lowest level since early 2025. The number of people working full-time fell by 27,000, mainly among middle-aged women, while 28,000 jobs were lost in the manufacturing sector; a decline of 1.5%, which means the sector’s continued struggle with the effects of American tariffs.
Loonie rebounds after dollar weakens
The Canadian dollar’s advance is due as much to the broad weakening of the US dollar as it is to domestic data. The US dollar index (DXY) fell to 97.9 on Friday on concerns about the US labor market and elevated valuations of artificial intelligence. Fresh data from the U.S. showed that job openings unexpectedly fell to their lowest level in 2020, job cuts reached the highest total level in January since 2009 and jobless claims rose to 231,000, well above the forecast of 212,000. A series of tender labor market data forced markets to price in interest rate cuts by the Federal Reserve (Fed) starting in June.
While the CAD benefited from the weakening dollar, oil prices did not support growth. Prices for a barrel of West Texas Intermediate (WTI) hovered near $62.50 on Friday, extending weekly losses as easing geopolitical tensions over the Iran-US nuclear talks and demand concerns put pressure on the commodity. Oil markets will close for their first weekly decline in six weeks, with Iran confirming negotiations reducing the near-term risk of supply disruptions.
BoC will remain suspended until 2026
Late last month, the Bank of Canada (BoC) kept its key interest rate at 2.25%, signaling that it expects to keep interest rates unchanged until 2026 unless the outlook changes. Governor Tiff Macklem noted that while the economy is showing resilience, uncertainty surrounding the upcoming review of the Canada-U.S.-Mexico Agreement keeps risks high. With inflation remaining close to the 2% target and continued excessive slack in the labor market, the BoC indicated that the current policy stance is appropriate to lend a hand the economy navigate structural changes related to US protectionism and slowing population growth.
Daily Market Change Roundup: Mixed Labor Data Drives CAD Rebound
- USD/CAD fell 0.56% to 1.3634, paring losses accumulated since slow January.
- The unemployment rate fell to 6.5%, the lowest level since September 2024, as labor participation declined.
- Manufacturing employment fell by 28,000, mostly in Ontario, as tariff pressure deepened.
- DXY fell to 97.9 after weaker U.S. labor market data strengthened expectations for Fed rate cuts starting in June.
- WTI crude oil near $62.50 fell on the week as Iran-US nuclear talks eased supply concerns.
- The BoC will keep its key interest rate at 2.25% until 2026, citing uncertainty surrounding the CUSMA review.
Canadian Dollar Price Forecast
Following the January jobs report, USD/CAD retreated from sixteen-month highs near 1.37, and the pair is currently trading at 1.3634. This move pushed the price back below recent resistance and into the known consolidation zone. The 50-day exponential moving average (EMA) near 1.38 and the 200-day EMA near 1.39 are above current price action, signaling that the broader uptrend is testing key support levels.
Short-term support is building near 1.36
The recent pullback towards 1.36 brings USD/CAD into a zone that has provided support multiple times over the past few months. A sustained break below 1.36 would expose a reach to 1.35, where buyers appeared during Loonie’s gains at the end of January. On the other hand, resistance is currently located near 1.37, with the 50-day EMA providing an additional barrier to any immediate recovery attempts.
Momentum indicators suggest that the short-term bias has changed
The relative strength index (RSI) retreated from overbought levels above 70 earlier this week and is now hovering in the mid-50s, leaving room for further declines if selling pressure continues. Friday’s edged reversal candle suggests that buyers may defend the 1.36 area, but confirmation is needed. A close below 1.3580 would indicate that the recent correction has more room to run, while a rebound above 1.3720 would indicate that the broader uptrend has re-established itself.
USD/CAD daily chart
Canadian Dollar FAQs
The key factors shaping the Canadian dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of crude oil, which is Canada’s largest export, the condition of its economy, inflation and the trade balance, i.e. the difference between the value of Canadian exports and imports. Other factors include market sentiment – whether investors are taking on riskier assets (with risk) or looking for secure havens (with risk), with risk being positive relative to CAD. As the United States’ largest trading partner, the health of the U.S. economy is also a key factor influencing the exchange rate of the Canadian dollar.
The Bank of Canada (BoC) has significant influence over the Canadian dollar by setting the interest rates that banks can lend to each other. This affects the level of interest rates for everyone. The main goal of the BoC is to keep inflation at 1-3% by raising or lowering interest rates. Relatively higher interest rates tend to benefit CAD. The Bank of Canada may also apply quantitative easing and tightening to influence lending terms, with the former being CAD negative and the latter CAD positive.
The price of oil is a key factor influencing the value of the Canadian dollar. Oil is Canada’s largest export, so the price of oil usually has a direct impact on the value of CAD. Generally speaking, if the price of oil increases, CAD also increases because aggregate demand for the currency increases. The opposite is true when the price of oil falls. Higher oil prices also tend to result in a greater likelihood of a positive trade balance, which also supports CAD.
While inflation has always traditionally been considered a negative factor for currency because it reduces the value of money, in current times the opposite has been true with the relaxation of cross-border capital controls. Higher inflation prompts central banks to raise interest rates, which attracts more capital inflows from global investors looking for a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian dollar.
Macroeconomic data releases are used to assess the condition of the economy and may affect the Canadian dollar. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of CAD. A powerful economy is good for the Canadian dollar. Not only will it attract more foreign investment, but it could encourage the Bank of Canada to raise interest rates, leading to a stronger currency. However, if economic data is tender, CAD will likely decline.
