USD/CAD Forecast: Strong US Jobs and Canadian Weakness Challenge Loonie Recovery
Canada’s jobs setback challenges Crédit Agricole’s recovery forecast for the Canadian Dollar, while USD/CAD has passed Scotiabank’s resistance level.
The US Dollar-to-Canadian Dollar exchange rate rose to 1.4108 on Friday, up 0.64% from Thursday’s close, after employment reports exposed a widening contrast between the two economies.
By the afternoon snapshot, USD/CAD stood above the 1.4080 resistance level Scotiabank identified before the releases, challenging the Canadian Dollar’s October recovery.
Crédit Agricole’s latest forecasts still envisage renewed Canadian Dollar gains, with USD/CAD at 1.38 in December 2026 and 1.32 in December 2027.
But its strategists had identified recovering Canadian employment as a potential source of reassurance, and Friday’s figures failed to provide it.
The Canadian recovery test falls short
Canada’s October employment estimate fell by 4,700, while the unemployment rate rose to 6.7% from 6.5%.
The small net employment decline represents broadly unchanged employment rather than a repeat of September’s much larger loss, but it fell short of the 15,000 consensus gain cited in Scotiabank’s pre-release calendar.
The rise in unemployment also reflected more people seeking work, according to the Canadian Press’s account of the release.
Writing before the data, Crédit Agricole explained why improvement mattered:
“To recall, poor readings over the past couple of months may have raised concerns that the Canadian labour market has struggled to cope with renewed trade frictions with the US. Evidence of a tentative recovery last month could thus offer some relief to the CAD, although a potent catalyst may be needed for USD/CAD to eventually go for a break of the 200DMA support that presently lies just below 1.39.”
Instead, USD/CAD has moved away from that longer-term moving average as the US labour market has shown greater resilience.
The US Bureau of Labor Statistics reported 165,000 additional payroll jobs, with unemployment at 4.1%, compared with the consensus expectations of 70,000 and 4.2% cited in Scotiabank’s morning calendar.
Our reading is that the contrast makes an extended Canadian tightening cycle harder to justify relative to the US, weakening one potential source of support for the Loonie.
It does not settle either central bank’s next decision, since both must assess inflation as well as employment.
The rate backdrop was already less favourable
Friday’s disappointment follows the weaker growth evidence that had already challenged further Bank of Canada hike expectations.
Crédit Agricole’s weekly report says:
“Domestically, the CAD has still had to deal with the publication of underwhelming growth data, with the first GDP estimate for Q326 pointing to a sharper slowdown (to 1.3% QoQ saar vs 2.0% BoC forecasts).”
Those figures describe annualised quarterly growth.
Scotiabank had also identified pressure from both commodities and relative bond returns:
“The recent decline in oil prices and modest widening in US-Canada yield spreads has been a modest headwind for the CAD, delivering a notable rise in our USDCAD FV estimate over the past few sessions.”
A wider US yield advantage can make Dollar assets more attractive, while weaker oil prices reduce a source of export support for Canada.
Scotiabank’s fair-value estimate stood at 1.4067 in the morning note, close to its then spot quote of 1.4065.
That model estimate describes the exchange rate implied by its inputs at the time, rather than a new price target issued after the employment releases.
The federal Budget had offered little immediate offset, according to the same note:
“Thursday’s federal budget release offered no major surprises and delivered no material movement in the currency.”
What This Means for USD/CAD
Scotiabank warned before the release:
“Near-term resistance has been observed around 1.4080, a level corresponding to the 38.2% retracement of the Aug/Oct rally. A break from here would challenge the bearish reversal observed from the October peak. We see near-term support below 1.40.”
Friday’s afternoon quote has crossed that threshold, although the supplied snapshot cannot establish whether the pair will close above it.
Crédit Agricole’s 1.38 year-end forecast would require USD/CAD to fall about 2.2% from 1.4108, calculated by Exchange Rates UK.
The bank’s forecasts predate the jobs reports and remain distinct from Scotiabank’s short-term chart levels.
For that recovery case to regain support, Canada needs evidence that hiring and output can improve despite trade uncertainty, or a change in the US outlook that reduces the appeal of Dollar assets.
Trade negotiations offer a separate route to Canadian Dollar support.
In its daily note, Crédit Agricole points to renewed talks between the two countries and explains:
“If this comes to fruition, any reversal of tariffs could be somewhat more positive for the CAD than for the USD, while at this stage USD/CAD could be set for some consolidation around 1.40, unless today’s jobs reports are to sway rate differentials significantly one way or another.”
The employment figures have challenged that consolidation view, but an agreement that actually reduces tariffs could still improve the outlook for Canadian businesses.
