Canadian Dollar suffers double blow as US jobs boom, domestic employment shrinks

USD/CAD accelerates its rally on Friday, gaining 0.78% to trade around 1.4120 at the time of writing, as stronger-than-expected United States (US) employment figures boost the US Dollar (USD), while disappointing Canadian labour market data weigh on the Canadian Dollar (CAD). The simultaneous release of the two reports highlights a sharp divergence between the labour markets of the two countries, reinforcing bullish momentum in the pair.

The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) increased by 165K in October, significantly exceeding market expectations of 65K. September's figure was also revised higher to 60K from the previously reported 29K, while August's reading was revised upward to 186K from 133K. These revisions added a combined 84K jobs to previous estimates, further strengthening the picture of US labour market resilience. The US Unemployment Rate declined to 4.1% in October from 4.2% in September.

The stronger-than-expected employment report supports expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy stance or consider further interest rate hikes if economic conditions remain resilient. According to the CME FedWatch tool, markets now price in a nearly 80% chance of a 25-basis-point interest rate hike in December, up from around 70% the previous day. This shift in expectations provides additional support to the US Dollar, with the US Dollar Index (DXY) rising by 0.74% on Friday to around 102.35 at the time of press.

Meanwhile, Canada's labour market presents a considerably weaker picture. Statistics Canada reported that the economy unexpectedly shed 4.7K jobs in October, compared with market expectations of a 13.6K increase. Although the decline was smaller than September's substantial loss of 68.3K jobs, the Unemployment Rate climbed to 6.7% from 6.5%, exceeding forecasts for an unchanged reading.

The Canadian economy has now lost a total of 114.7K jobs over the past three months, highlighting persistent labour market weakness amid uncertainty surrounding US trade tariffs and their impact on hiring.

These disappointing figures complicate the outlook for the Bank of Canada (BoC), which raised its benchmark interest rate on October 28 for the first time in more than three years. The continued deterioration in employment could encourage policymakers to adopt a more cautious approach to additional monetary tightening, particularly if economic activity remains under pressure.

Against this backdrop, the contrasting employment reports reinforce the divergence in monetary policy expectations between the Fed and the BoC, providing additional support to USD/CAD. Stronger US labour market conditions, combined with weakening Canadian employment, could continue to favour the US Dollar against its Canadian counterpart.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.4119, capped just beneath the 200-period simple moving average (SMA) at 1.4120, which acts as immediate overhead resistance. The pair remains under a dense topside barrier formed by horizontal levels at 1.4130 and 1.4150, keeping the near-term bias cautious despite a strong advance from the 100-period SMA (EMA) support at 1.4035. The Relative Strength Index (14) has surged into overbought territory near 77, hinting that upside momentum may be stretched and vulnerable to a corrective pullback while price holds below the 200-period SMA.

On the topside, initial resistance is located at the 200-period SMA at 1.4120, followed by the horizontal caps at 1.4130 and 1.4150, with a more distant barrier at 1.4200. On the downside, the first area to watch is the recent price zone around 1.4119, with stronger support seen at the horizontal floor near 1.4070 and then at the 100-period SMA at 1.4035, where buyers previously emerged; a slide back toward this cluster would signal that the current rally is losing traction.

(The technical analysis of this story was written with the help of an AI tool. Know more.)