US and Canadian jobs data awaited as Canadian Dollar loses ground

1.4050 is in sight for USD/CAD as it strengthens in early European trading on Friday.
Demand for safety and subdued risk appetite lend support to the US Dollar.
Employment figures from the US and Canada are in focus ahead of their release later on Friday.

USD/CAD advances towards 1.4050. The pair picks up momentum in Friday’s early European session as demand for safe-haven assets following the US equity sell-off lifts the US Dollar (USD) against the Canadian Dollar (CAD). Ahead of US and Canadian employment releases later on Friday, markets may adopt a cautious stance.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Control of the Senate and House of Representatives passes from Republicans to Democrats as the Democrats secure majorities in both chambers. Tens of millions of voters deliver a sharp rebuke to President Donald Trump, handing Democrats major victories in several Republican strongholds for the first time in decades.

October Nonfarm Payrolls (NFP) are expected to rise by 65,000, compared with September’s 29,000 gain, according to economists. Traders will scrutinise the US jobs report for signals on the interest rate outlook. Forecasts put the Unemployment Rate unchanged at a very low 4.2%.

Stronger-than-forecast results could bolster arguments for US interest rate increases, supporting the Greenback. Conversely, evidence of a weakening US labour market could weigh on the USD in the near term.

Referring to the NFP release, MUFG analysts said: "Recent data suggests improvement in the labour market, and we expect that to continue with this report,"

For Canada, consensus forecasts point to a modest increase of 13,600 jobs in October as the economy recovers some lost ground. The Canadian Unemployment Rate is expected to remain at 6.5% for the month.

USD/CAD Support in Focus as Scotiabank Questions Loonie Gains

Despite the Canadian Dollar’s appreciation, Scotiabank analysts point out that “the loonie’s relative performance is somewhat more underwhelming when compared to its peers, and highlights its role as a lower-beta risk and commodity currency.” Underlying drivers do not fully support the advance, they caution, although “the CAD’s strength is notable nonetheless, and threatening to deliver fresh local highs as it retraces its selloff from early September,” they add.

A renewed widening of US-Canada yield spreads underpins Scotiabank’s reservations: “we are somewhat cautious however, given the renewed CAD-negative widening in US-Canada yield spreads, and note that recent CAD strength has not been confirmed by fundamentals.” Its technical assessment is “bearish/neutral,” with analysts noting that “the latest decline in USD/CAD looks to be struggling to extend much below the mid-1.39s, and the RSI has steadied in the low 30s.” On key levels, the bank states that “we continue to look to near-term support in the 1.3900/1.3920 area and see resistance above 1.4000,” while adding that “our FV estimate has climbed over the past few sessions and is currently at 1.4119,” highlighting some divergence between the spot rate and its fair value model.

Technical Analysis: 100-Day SMA Anchors Neutral USD/CAD Outlook

A Relative Strength Index (RSI) reading of roughly 49 points to little directional conviction on the daily USD/CAD chart, with neither buyers nor sellers holding a clear advantage. The pair trades just above its 100-day simple moving average (SMA), yet remains below the 20-day Bollinger middle band. This positioning keeps the near-term outlook broadly neutral and range-bound. Following the recent retreat from the upper Bollinger band, price movements suggest the pair is stabilising.

The Bollinger middle band near 1.4065 marks the first resistance level. A daily close above it would clear the way for another test of the upper band around 1.4255. Immediate downside support sits at the 100-day SMA of 1.4045. A break beneath that level would expose the lower Bollinger band area near 1.3881, where buyers may seek to defend the floor of the broader trading range.

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

Canadian Dollar: Key Questions Answered

Canadian Dollar: Main Market Drivers

Interest rates set by the Bank of Canada (BoC), oil prices, economic conditions, inflation and the trade balance are the main influences on the Canadian Dollar (CAD). Oil is Canada’s largest export, while the trade balance measures the difference between the value of exports and imports. Investor sentiment also matters: a shift towards riskier assets, known as risk-on, supports the CAD, whereas risk-off describes a preference for safe havens. Conditions in the US economy are another important influence, as the US is Canada’s largest trading partner.

Bank of Canada Policy and the Canadian Dollar

By setting the rate at which banks lend to each other, the Bank of Canada (BoC) shapes borrowing costs across the economy and exerts considerable influence over the Canadian Dollar. Its primary objective is to keep inflation within 1-3%, raising or lowering interest rates to achieve that goal. Relatively high rates generally support the CAD. The BoC can also adjust credit conditions through quantitative easing or tightening: easing is negative for the CAD, while tightening is positive.

Oil Prices and the Canadian Dollar

As petroleum is Canada’s largest export, changes in oil prices typically have an immediate effect on the Canadian Dollar’s value. Rising oil prices generally lift the CAD by increasing overall demand for the currency; falling prices have the reverse effect. Higher oil prices also make a positive trade balance more likely, providing another source of support for the CAD.

Inflation’s Influence on the Canadian Dollar

Inflation was traditionally viewed as harmful to a currency because it erodes the value of money. With cross-border capital controls now more relaxed, however, the reverse has been true in modern times. Higher inflation generally prompts central banks to raise interest rates, drawing capital from global investors seeking attractive returns. These inflows increase demand for the domestic currency, which in Canada is the Canadian Dollar.

Economic Indicators and Canadian Dollar Performance

GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all steer the Canadian Dollar by signalling the economy’s health. Economic strength supports the currency: it attracts foreign investment and may prompt the Bank of Canada to raise interest rates, further lifting the CAD. Weak economic releases, by contrast, are likely to push the currency lower.