The Canadian Dollar (CAD) experienced significant underperformance on Friday following the release of a disappointing employment report from Statistics Canada. The country lost 68,300 jobs in September, a stark contrast to economists' expectations of a 7,000 job gain. This decline follows a previous loss of 41,700 jobs in August. The unemployment rate increased to 6.5% from 6.4%, and the labour-force participation rate dropped to 64.8%, marking its lowest level since December 1997 outside the pandemic period [1].
As a result, USD/CAD climbed to around 1.4276, levels last seen in April 2025, reflecting the CAD's weakness against the US Dollar. Canadian government bond yields fell after the report, with the two-year yield dropping more than 8 basis points to approximately 3.199%. The widening yield gap between US and Canadian bonds, with the US two-year Treasury yield at 4.797% (about 160 basis points higher than its Canadian counterpart), continues to be a major headwind for the CAD, despite support from higher oil prices linked to Middle East supply risks [1].
The US Dollar remains firmly bid, trading near an 18-month high as markets anticipate further interest rate hikes from the Federal Reserve. The US Dollar Index (DXY) is at 102.30 after recovering from an intraday low of 101.92. Recent hawkish commentary from Fed officials, including St. Louis Fed President Alberto Musalem and Fed Governor Christopher Waller, has reinforced expectations for additional monetary policy tightening if economic data develops as expected [1].
The Canadian Dollar's performance today shows it was the weakest against the Japanese Yen, with a -0.48% change, and also declined against other major currencies such as the USD (-0.23%), EUR (-0.34%), and GBP (-0.31%) [1]. Attention now turns to upcoming US economic data, including the preliminary University of Michigan Consumer Sentiment Index for October and inflation expectations, which may further influence currency markets [1].
CONCLUSION
Canada's sharp job losses and rising unemployment have triggered a notable sell-off in the Canadian Dollar, with USD/CAD reaching multi-year highs. The widening yield gap and hawkish US Fed outlook are compounding CAD weakness, suggesting continued pressure unless domestic economic conditions improve. Market participants are now closely watching US economic data for further direction.