Canadian Dollar Holds Gains as Oil Surge Offsets Fed Bets
Canadian Dollar Holds Gains as Oil Surge Offsets Fed Bets
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Key Points
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U.S. and Canadian markets were closed for Labour Day, contributing to relatively thin liquidity and helping keep USD/CAD confined within Friday’s trading range.
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August U.S. nonfarm payrolls rose by 162,000, compared with expectations for just 56,000, while the unemployment rate held at 4.1%; CME FedWatch put the probability of a September 25-basis-point rate increase at about 58.3%.
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Canada lost 41,700 jobs in August while its unemployment rate remained at 6.4%. Thomas Ryan of Capital Economics said the sharp employment decline and continued slowdown in wage growth undermined the view that the economy had decisively turned a corner.
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ING analysts said the dollar should be performing better given high energy prices and the strong August payrolls report, but attributed its muted response partly to a constructive global investment environment; they said the dollar’s inverse relationship with global equities was currently stronger than its link to oil prices.
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TD Securities said the stronger-than-expected U.S. payrolls and weaker Canadian data had overwhelmed temporary support from the Bank of Canada’s hawkish stance, shifting the balance of risks against the Canadian dollar.
The Canadian dollar held steady near 1.3810–1.3835 on Monday as surging oil prices propped up the loonie, offsetting weakness from soft Canadian jobs data. Crude climbed toward $90 a barrel amid escalating U.S.–Iran tensions around the Strait of Hormuz, bolstering the commodity-linked Canadian currency even as stronger U.S. payrolls raised expectations for higher American interest rates, according to FXStreet.
August U.S. nonfarm payrolls jumped to 162,000 versus forecasts of just 56,000, pushing the CME FedWatch probability of a September Fed rate hike to 58.3%, according to Investing. Meanwhile, Canada shed 41,700 jobs in August. The competing signals left USD/CAD confined within a narrow range as traders awaited U.S. inflation data to clarify the Federal Reserve's next move.
Oil Rally Props Up the Loonie Amid Middle East Tensions
Crude oil's climb toward $90 a barrel has become the loonie's lifeline. Escalating U.S.–Iran tensions and concerns about disruptions near the Strait of Hormuz have added a geopolitical premium to energy prices. This surge in oil—Canada's largest export—has directly supported the Canadian dollar despite headwinds from weak employment and Fed rate-hike bets, according to Investing.
Stronger U.S. Jobs Report Fuels Fed Rate Hike Expectations
The U.S. labor market delivered a surprise in August. Nonfarm payrolls rose 162,000—nearly three times the expected 56,000—while unemployment held steady at 4.1%. This strength shifted market expectations sharply. The CME FedWatch tool now prices a 58.3% probability that the Federal Reserve will raise rates by 25 basis points at its September meeting, FXStreet reported.
Canada's Employment Collapse Undermines Economic Recovery Hopes
Canada's jobs market stumbled badly in August. The country shed 41,700 positions while its unemployment rate stayed flat at 6.4%. Capital Economics strategist Thomas Ryan said the sharp decline and continued wage growth slowdown cast doubt on claims that the economy had turned a decisive corner. This weakness pressured the Canadian dollar despite oil's gains.
Dollar's Muted Gains Puzzle Strategists Despite Oil and Jobs Support
The U.S. dollar should be climbing faster given strong payrolls, elevated oil prices, and rising Fed rate-hike odds. Yet gains have been modest. ING analysts attribute this to a constructive global investment environment where the dollar's link to stock markets currently outweighs its traditional oil-price connection. TD Securities sees the stronger U.S. data and weaker Canadian figures tipping risks against the loonie in coming weeks.
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