The Canadian Dollar rose against the US Dollar on Friday. This change happened as the US Dollar weakened due to disappointing US Nonfarm Payrolls data, which showed fewer job additions than expected and downward revisions for previous months. The Canadian Dollar’s movement reflected overall US market trends and investor sentiment. The Federal Reserve highlighted the need for stable inflation and showed signs of weakness in the US labor market, influencing expectations for rate cuts.

USD/CAD Movement

The USD/CAD rate fell below 1.3800 after six days of gains for the US Dollar. The Nonfarm Payroll figures for July showed only 73,000 jobs added, much less than the expected 110,000. Additionally, revisions for May and June totaled a decline of 258,000 jobs. Several factors affect the Canadian Dollar, including the Bank of Canada’s interest rates, oil prices, economic health, inflation, and trade balance. The trade relationship between the US and Canada is also significant. Economic indicators such as GDP, PMIs, employment statistics, and sentiment surveys impact the value of the Canadian Dollar. A strong economy may lead to interest rate hikes by the Bank of Canada, boosting the currency, while weak data can lead to a decrease in value. Given the weak US jobs report, market sentiment has shifted significantly. The US Dollar has lost ground, pushing the USD/CAD pair below the crucial 1.3800 level after a week of gains. This suggests a likely lower trend for the pair in the near future.

Federal Reserve Impact

The unexpected dip in July’s Nonfarm Payrolls, which totalled only 73,000 against the forecast of 110,000, gives the Federal Reserve reason to consider rate cuts. The US Q2 GDP growth has slowed to 1.6%, and the most recent Core PCE inflation rate for June 2025 has eased to 2.7%. These factors support a more dovish Fed stance, with futures now indicating over a 70% chance of a rate cut at the September 2025 meeting, up from just 40% last week. In contrast, the Canadian economy seems stronger, highlighting a clear difference in policy approach. Today’s jobs report from Canada showed an increase of 41,000 jobs, exceeding expectations and maintaining the unemployment rate at 5.5%. With WTI crude oil prices remaining above $85 per barrel this past month, the Bank of Canada is under less pressure to cut interest rates compared to the US. This situation recalls a similar trend from late 2023 when markets began anticipating Fed rate cuts before other central banks, resulting in a broad decline in the US dollar over several months. We might be starting to see a similar pattern emerge in the summer of 2025. This historical context suggests that the current move against the dollar may continue to gather strength. In the upcoming weeks, we should explore strategies that could benefit from a steady decline in USD/CAD. This might involve buying Canadian Dollar call options or selling out-of-the-money put options on the pair to earn premiums. The break below 1.3800 serves as a signal to position for further CAD strength, with a potential target around the 1.3650 level seen in early June 2025. However, we need to keep an eye on next week’s US CPI inflation data, which is the most crucial upcoming report. An unexpectedly high inflation figure could quickly change market sentiment and lead to a sharp rally in the US Dollar. Therefore, it’s wise to remain flexible in our positions ahead of that release. Create your live VT Markets account and start trading now.

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