Canada experienced a significant labor market setback in September, losing 68,300 jobs compared to a forecasted gain of 7,000 jobs. This follows a loss of 41,700 jobs in August, effectively erasing all net job gains for 2026 to date [1]. The unemployment rate rose to 6.5%, matching expectations, but this figure was influenced by approximately 53,000 people leaving the labor force. Had these individuals remained in the labor force, the unemployment rate would have approached 6.8% [1].
The weak jobs data prompted traders to reduce their expectations for a Bank of Canada (BoC) interest rate hike at the upcoming October 28 meeting, with the next hike now anticipated in December. The BoC's current policy rate of 2.25% remains at least 1.5 percentage points below the U.S. Federal Reserve's 3.75%-4.00% range, a gap that has contributed to the USD/CAD currency pair's upward movement since early September [1].
Following the jobs report, the Canadian dollar (Loonie) fell sharply, with USD/CAD surging from below 1.4250 to just under 1.4300 in a single five-minute trading window. This marked the pair's highest level since early April 2025. The trading range for USD/CAD since October 1 has been between 1.4200 and just under 1.4300, with the latest high only slightly surpassing Monday's peak [1].
Additional market data showed the University of Michigan sentiment index dropping to 46.3, below the forecast of 47.6, and year-ahead inflation expectations rising to 4.7%. The 10-year U.S. Treasury yield remained above 5.25%, further supporting the USD/CAD's upward movement following the release [1].
CONCLUSION
Canada's unexpected job losses and a rising unemployment rate have put pressure on the Canadian dollar, driving it to an 18-month low against the U.S. dollar. The disappointing labor data has led traders to push back expectations for a Bank of Canada rate hike, widening the policy gap with the U.S. Federal Reserve and fueling further weakness in the Loonie.