Loonie rallies as USD/CAD breaks below key averages after Canada jobless rate shocks lower
The Canadian dollar surged Friday after a stronger-than-expected employment report sent USD/CAD tumbling through major technical supports, reviving debate over whether the Bank of Canada may need to pivot back toward tightening sooner than markets anticipated.
Canada’s labor jolt resets BoC expectations
Canada’s unemployment rate fell to 6.5%, beating expectations for 7.0%, even as the participation rate eased to 65.1% from 65.3%. The headline gain was underpinned by a large rise in part-time roles (+63.0k vs +85.1k prior), while full-time employment slipped by 9.4k (vs -18.5k prior). Average hourly wages for permanent employees rose 4.0% year on year, unchanged, keeping underlying pay pressures sticky.
Two soft summer reports had clouded the trajectory of hiring, but back-to-back strong prints through September and October—and now this surprise drop in joblessness—have tilted the narrative. The BoC had signaled a preference to stay on the sidelines, yet Friday’s data reopens the door to hawkish chatter if labor tightness persists and wage growth remains firm.
Markets lean pro-CAD as rate differentials compress
FX markets reacted swiftly: USD/CAD fell sharply, with traders citing a narrowing US-Canada rate differential and a modest pickup in CAD demand amid higher domestic yield expectations. Options desks reported better bids for CAD calls as spot pushed through multi-month supports, while short-term realized volatility climbed on the break.
Risk appetite remained cautious, but the data-driven move in the loonie stood out, aided by clean technical triggers and thin pre-weekend liquidity.
Technical picture: bears seize momentum
USD/CAD sliced below the 100-day moving average at 1.3901 and the 200-day at 1.3886, a bearish shift that strengthened downside momentum. The pair also breached the 50% retracement of the June low to November high at 1.3839, which now acts as near-term resistance and a tactical “line in the sand” for sellers.
On the downside, the 61.8% retracement—aligned with a mid-September swing zone—sits near 1.3768, the next pivotal target. Intraday flows centered around the 1.3800 handle, with bears eyeing a sustained close below that level to confirm follow-through. A close back above 1.3839 would temper the immediate bearish bias and refocus attention on the broken 200- and 100-day averages near 1.3890–1.3900.
Key Points
- USD/CAD fell hard after Canada’s unemployment rate dropped to 6.5% (vs 7.0% expected).
- Participation eased to 65.1%, full-time jobs -9.4k, part-time +63.0k; wage growth steady at 4.0% y/y.
- Pair broke below the 100-DMA (1.3901) and 200-DMA (1.3886), turning the technical trend bearish.
- 1.3839 (50% retracement) flips to resistance; 1.3768 (61.8% retracement/swing level) is the next key support.
- Stronger labor data revives BoC-hike debate, narrowing rate differentials and supporting CAD.
What traders are watching next
– Incoming CPI and retail sales for confirmation that firm jobs and sticky wages are feeding through to broader price pressures.
– BoC communications and OIS repricing for any shift from a “prolonged hold” toward a conditional tightening bias.
– Energy markets: oil price resilience typically bolsters the loonie’s terms of trade, amplifying CAD’s cyclical tailwinds.
– US data and Treasury yields, which can counterbalance CAD strength by shifting the USD side of the cross.
FAQ
Why did USD/CAD drop after the jobs report?
Canada’s unemployment rate unexpectedly fell to 6.5%, signaling a tighter labor market. That boosted Canadian yields and narrowed rate differentials with the US, supporting the CAD and pushing USD/CAD lower.
Does this mean the Bank of Canada will hike rates?
Not immediately, but the stronger data revives the conversation. If wage growth stays firm and inflation indicators re-accelerate, the BoC could pivot to a more hawkish stance. Markets will watch upcoming CPI and BoC guidance closely.
What are the key USD/CAD technical levels now?
Immediate resistance is 1.3839 (50% retracement of the June–November rally). A sustained move below 1.3800 opens 1.3768 (61.8% retracement and prior swing area). On the topside, 1.3886–1.3901 (200- and 100-day moving averages) is now formidable resistance.
How do oil prices affect the Canadian dollar?
Canada is a major crude exporter, so higher oil prices typically improve Canada’s terms of trade and support the CAD. Weak oil can remove a key tailwind and blunt CAD gains.
What could invalidate the bearish USD/CAD setup?
A quick rebound above 1.3839 and then 1.3890–1.3900 would neutralize the downside momentum. Soft Canadian data or a US yield surge could also flip the narrative back in favor of USD strength.
Reported by BPayNews.
