The Canadian dollar is experiencing a period of strengthening, driven by a combination of domestic and international factors. Resilient labour market data in Canada, coupled with supportive commodity prices and a weaker US dollar, are contributing to the currency’s upward trajectory. Market sentiment is shifting away from expectations of near-term easing by the Bank of Canada, further bolstering the loonie.
- Canadian dollar firmed toward 1.35 per US dollar, closing in on 16 month highs.
- January labour data pushed the unemployment rate down to 6.5%, the lowest since September 2024.
- Wage growth near 3.3% weakened the case for near-term Bank of Canada easing.
- Broad US dollar softness followed weaker US labour indicators and reports that Chinese regulators advised banks to curb Treasury exposure.
- Oil prices increased, further supporting the currency by improving Canada’s terms of trade and export revenues.
- USD/CAD pair remains under some selling pressure for the fourth straight day and drops to a nearly two-week trough on Wednesday.
- Spot prices, however, manage to hold above the 1.3500 psychological mark heading into the European session as traders keenly await the delayed release of the closely-watched US monthly employment details.
Overall, the economic data suggests a positive outlook for the Canadian dollar. The strengthening labour market and supportive commodity prices, especially oil, are creating a favorable environment. Furthermore, a weakening US dollar is providing additional tailwinds. These factors combined have led to increased foreign inflows and a reduction in downside risks for the Canadian dollar.