Friday’s economic focus is on Canada with the release of the June jobs report. This report often coincides with non-farm payrolls but is standalone this time.
The expectation is for an unchanged reading after a +8.8K gain in May. The unemployment rate is projected to increase to 7.1% from 7.0%, marking the highest since 2021 and, excluding the pandemic, the highest since May 2016. This follows a rise from a 4.8% low in July 2022.
Canadian Dollar Performance
The Canadian dollar made gains on Thursday but lagged behind other commodity currencies, partly because of a 2% drop in oil prices. Trade concerns persist, due to recent higher US tariffs and issues with Brazil.
The USD/CAD currency pair has been in a consolidation phase for six weeks. It is anticipated to move lower and potentially test 1.34 by the year’s end.
For those following how this market is developing, here’s what the above tells us. The Canadian economy continues to show clear signs of softening. That expected increase in the unemployment rate, inching up to 7.1%, suggests a labour market under pressure. We’re not dealing with sharp contractions, but the trend is moving steadily away from the tightness seen in mid-2022. When jobs data starts rising like this—not from a dip, but from a steady march upwards—it points to employers cutting back.
Thomson’s forecast for an unchanged headline number reflects this unease. Though May posted a modest rise in employment, it’s not enough to counter the broader concerns. The Bank of Canada remains highly sensitive to these labour signals, and we would argue – based on recent commentary – that they’re watching wage data even more closely than jobs growth.
Potential Market Reactions
Now, the Canadian dollar gained ground mid-week, but the strength was notably uneven. It was outpaced by other resource-linked currencies, a reaction tied to external forces more than anything domestic. Oil sold off by about 2%, and given how heavily Canada leans on energy exports, this knocked investor confidence. Trade uncertainty hasn’t helped either. While many focus on the United States’ activity in that sphere, the tension around South American partners hasn’t eased.
Sullivan’s analysis of the USD/CAD pair does raise a few flags. A six-week holding pattern ahead of a directional move suggests positioning is building. Notably, a possible shift towards the 1.34 level requires both Canadian weakness and US stability. The Federal Reserve’s own tone—as well as inflation and rate expectations—will weigh heavily here.
For those managing short or medium-term bets, we’ve taken a close look at implied volatility levels. They’re unusually low given the backdrop, which means optionality might be underpriced. That’s rare before simultaneous labour reports across borders. But the absence of a US jobs release this time isolates Canada’s print, giving it more market-moving potential.
Jackson’s team was right to highlight the importance of trade friction. If tariffs remain in place or worsen, it caps upside for the loonie. That makes net long positions hard to hold unless you’re hedging against other terms-of-trade metrics. We’d also advise watching the two-year bond spread versus Treasuries, which continues to drift further in favour of US yields.
If the data surprise to the downside—especially on full-time employment—price action should intensify. We’re focusing most on the composition of Friday’s figures. Goods-producing sectors may hold up, but if softness spreads to services, then we’ll see increased pressure on the Canadian central bank to pivot again.
It’s worth remembering that market reaction tends to be sharpest when expectations are narrow. This print has seen forecasters largely aligned, meaning any divergence tends to generate wider follow-through. Given that, we’re currently scanning for reward-to-risk asymmetry in short-dated derivatives that expire before the next rate meeting.
There are seasonal patterns here too, but they’re less reliable. Participation drops into mid-summer, which can make intraday moves wilder. That’s particularly relevant with options positioning light. If you’re managing exposure over the next few weeks, skew has offered better value than delta lately—particularly on downside protection.
Morgan’s forward guidance analysis should be approached with some scepticism. We haven’t yet seen enough labour weakness to fully price in a prolonged pause or cut in rates. But if Friday’s figures show another jobless surge, that pricing might shift in a hurry. Accordingly, we’re watching front-end interest rate futures for sudden adjustments more than outright FX.
There’s little point in waiting for a clear trend to set in. Reactions are increasingly binary. As spreads widen and oil stays soft, correlations with North American equity flows are also resurfacing. That’s feeding back into risk appetite toward the CAD, and in our view, reducing its refuge status even within commodities.
The short-term view remains cautious. Directional conviction should stay aligned with domestic tier-1 data, and this Friday may well set the tone for how the summer unfolds.
