The Canadian Dollar strengthened against the US Dollar on Friday. The US Dollar weakened following US Nonfarm Payrolls data, which showed lower than expected job additions and past months’ revisions downward.
The Canadian Dollar’s movement aligned with overall US market positioning and risk sentiment. The Federal Reserve indicated the need for stable inflation and signs of US labour market weakness, which emerged on Friday, influencing Fed rate cut expectations.
Usd Cad Movement
USD/CAD dropped below 1.3800 after six consecutive days of USD gains. The US NFP figures for July were 73K, falling short of the expected 110K, with May and June seeing cumulative headline revisions of 258K downward.
The Canadian Dollar’s positioning is impacted by factors including the Bank of Canada’s interest rates, Oil prices, economic health, inflation, and trade balance. The US-Canada trade relationship also plays a role.
Economic indicators like GDP, PMIs, employment, and sentiment surveys influence the Canadian Dollar’s value. A strong economy contributes to potential interest rate hikes by the Bank of Canada, which strengthens the currency. Conversely, weak data may cause the CAD to weaken.
Based on the weak US jobs report from today, we see a significant shift in market sentiment. The US dollar has clearly lost its footing, pushing the USD/CAD pair below the key 1.3800 level after a week of gains. This break suggests that the path of least resistance for the pair in the near term is lower.
Federal Reserve Impact
The surprise miss in July’s Nonfarm Payrolls, coming in at only 73K against an expected 110K, gives the Federal Reserve the justification it has been waiting for to consider rate cuts. Looking at the data, we’ve seen US Q2 GDP growth slow to 1.6% and the latest Core PCE inflation figure for June 2025 ease to 2.7%, supporting the case for a more dovish Fed. Fed funds futures are now pricing in over a 70% chance of a rate cut at the September 2025 meeting, a jump from just 40% last week.
In contrast, the Canadian economy appears more resilient, creating a clear policy divergence. Canada’s own jobs report today showed a gain of 41K positions, beating expectations and keeping the unemployment rate steady at 5.5%. With WTI crude oil prices holding firm above $85 per barrel this past month, the Bank of Canada has less pressure to cut interest rates compared to its US counterpart.
This situation reminds us of a similar pattern in late 2023, when markets began aggressively pricing in Fed rate cuts before other central banks, leading to a broad multi-month decline in the US dollar. We could be at the beginning of a similar dynamic unfolding in the summer of 2025. This historical precedent suggests the current move against the dollar may have lasting momentum.
For the coming weeks, we should consider strategies that profit from a continued fall in USD/CAD. This could involve buying Canadian dollar call options or selling out-of-the-money put options on the pair to collect premium. The break of 1.3800 is our signal to position for further CAD strength, potentially targeting the 1.3650 level seen back in early June 2025.
However, we must watch for next week’s US CPI inflation data, which is now the most important upcoming report. An unexpectedly high inflation number could quickly reverse this sentiment and cause the US dollar to rally sharply. Therefore, keeping positions nimble ahead of that release is a prudent measure against a sudden reversal.
