USD/CAD: Loonie Weakens After U.S. Dollar Hits Over 1-Year High on Strong Jobs Data

The Canadian dollar weakened against its U.S. counterpart on Friday after the greenback hit over one-year high on strong October jobs data and falling energy prices that weighed on the commodity currency.

“The Canadian dollar is moderately weaker on the week, moving broadly in line with the bloc of commodity/pro-cyclical currencies. The question now is whether the upside correction in USD/CAD will extend meaningfully above 1.2500. We think this should be down mostly to external factors, as the domestic story of imminent BoC tightening remains likely supportive,” noted Francesco Pesole, FX Strategist at ING.

Today, the USD/CAD rose to 1.2479 up from Thursday’s close of 1.2455. Still, the Canadian dollar gained about 2.3% last month after depreciating around 0.5% in September.

The dollar index, which measures the value of the dollar against six foreign currencies, was trading 0.22% higher at 94.554. That gain was largely driven by the U.S. employment report, which showed that jobs were up more than expected during October as COVID-19 infections decreased over the summer. After a summer slump, the labour market rebounded in October adding 531,000 jobs and trimming the unemployment rate to 4.6%.

It is highly likely that the world’s dominant reserve currency, the USD, will rise by end of the year, largely due to the expectation of at least one rate hike next year. With the dollar strengthening and a possibility that the Federal Reserve will raise interest rates earlier than expected, the USD/CAD pair may experience a rise.

On the other hand, Statistics Canada data showed that the Canadian economy added 31,200 net jobs in October, entirely in full-time work, but missed analyst expectations. The unemployment rate fell to 6.7%.

“A modest lift to the CAD but we think this is temporary as a lot of good news is in the price. The CAD has been overbought and is modestly rich. Taken in line with our expectation of a firmer USD in the weeks ahead, we are comfortable holding onto our USDCAD long,” noted Mazen Issa, Senior FX Strategist at TD Securities.

Canada is the world’s fourth-largest exporter of oil, which edged lower as the U.S. intensifies pressure on OPEC for more crude. However, at the time of writing, U.S. West Texas Intermediate (WTI) crude was trading 1.42% higher at $79.92 a barrel. Lower oil prices lead to lower U.S. dollar earnings for Canadian exporters, resulting in a decreased value of the loonie.