The Canadian Dollar weakened on Friday, initially falling against the US Dollar due to disappointing Canadian jobs data. Canada lost 40.8K jobs in July, contrasting sharply with predictions and the previous month’s gain of 83.1K jobs, which pressured the Loonie before broader market trends benefited it slightly.

The lack of major Canadian economic releases next week means global US Dollar trends will dominate. The Bank of Canada is expected to cut interest rates due to slowing job creation, while upcoming US CPI inflation data could heavily influence markets by affecting perceptions of inflation trends.

USD/CAD Weekly Performance

The USD/CAD remained around the 1.3750 level, with technical supports at 1.3700. This week, the CAD saw a minimal gain of just 0.26% against the US Dollar, lacking substantial upward momentum.

Factors affecting the CAD include Bank of Canada interest rates, oil prices, Canada’s economic health, inflation, and trade balances. Changes in market sentiment and the US economy also play a major role. The BoC adjusts interest rates to manage inflation, which can impact CAD value.

Oil prices, as Canada’s key export, influence CAD performance. Higher prices tend to bolster the CAD, while macroeconomic data sets shifts in currency strength.

Given the weak Canadian jobs report from July 2025, which saw a loss of 40.8K jobs and pushed the unemployment rate to 6.4%, we see a clear bearish trend for the Canadian dollar. The market is now pricing in over a 75% chance that the Bank of Canada will cut interest rates at its next meeting in early September. This reinforces the view that the path of least resistance for the loonie is downward.

Focus on Upcoming US CPI Data

With no major Canadian economic reports in the coming week, our focus must shift entirely to the upcoming US Consumer Price Index (CPI) data. Market consensus is for a 3.5% year-over-year Core CPI reading, and any figure above this will almost certainly strengthen the US dollar further. This makes long USD/CAD positions particularly attractive leading into the announcement.

From a derivatives standpoint, we should be looking at buying call options on USD/CAD with strike prices above the current 1.3750 level. This strategy offers upside exposure if the US data comes in hot, pushing the pair towards the 1.3850 resistance area. The limited risk of an option premium is prudent given the binary nature of the upcoming data release.

Implied volatility for USD/CAD is expected to increase as we approach the US inflation report. We can take advantage of this by considering long volatility strategies, such as a straddle, if we anticipate a significant price move but are unsure of the direction. This would profit from a spike in the pair whether it surges higher or reverses sharply.

We are also monitoring oil prices, as West Texas Intermediate (WTI) crude is holding around $82 a barrel. While this price level would typically be supportive for the loonie, the negative domestic economic outlook is currently a much stronger force. A break below $80 in oil would add significant downside pressure to the Canadian dollar.

This environment is reminiscent of the market conditions we observed in late 2023, when a cooling Canadian labour market preceded a dovish pivot from the Bank of Canada. That historical pattern suggests the current weakness in the Canadian dollar is not a short-term reaction but the start of a more sustained trend. Therefore, we should position for continued strength in the USD/CAD pair over the coming weeks.

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