On Friday’s North American trading session, the USD/CAD currency pair spiked up to almost 1.3920. This jump came on the heels of a disastrous Canadian labor market report for April. The Canadian job losses continued to worsen with unemployment accelerating to 6.9%, much worse than analysts’ expectations, and the highest number since October 2021. Unemployment has gone up, despite a growing number of jobs being added. This change has had a remarkable effect on the currency movements between the US dollar and the CAD.
Strengthening of the USD/CAD pair is linked inextricably with positive overwhelming economic sentiments across Canadian labor market. In April, Canada created 7.4 thousand jobs, more than three times the expected 2.5 thousand. Positive net job creation was huge. That good news was completely left in the dust by a huge increase in the unemployment rate, shooting up from 6.7% in March to 6.9%. This follows a net Canadian economy loss of 32.6 thousand jobs in March, demonstrating the unpredictability of changing employment trends.
Unemployment Rate Surges
The increase in the Canadian unemployment rate to 6.9% has made waves across the Canadian economic community, from economists to policymakers. This figure was much higher than the prediction of 6.8%. It pointed to a big jump from last month’s reading of 6.7%. The increase in the jobless rate points to some pretty worrying undercurrents in the Canadian labor market that may be economically destabilizing.
This increase in unemployment is indicative of pain that some industries are experiencing, which is likely undermining consumer confidence and spending. It’s not just about inflation. The health of our labor market is critically important to sustaining economic growth. These new numbers indicate that recovery will take longer than we hoped.
“80% Tariff on China seems right! It’s up to Scott Bessent.” – Donald Trump
Further complicating matters, the broader context of international trade foils Canadian economic prospects. The recent comments from President Donald Trump regarding tariffs on China may signal further economic adjustments that could influence both the US and Canadian markets.
Economic Indicators and Their Impact
Throughout this time, the unemployment rate has almost doubled. The Canadian economy at least added 7.4K new jobs to the mix, which in and of itself is a positive sign. Average hourly wages surged by 3.5% over a year ago. This increase suggests that the employed are increasingly more well-off, despite the continuously climbing unemployment rate. In the long run, increasing wage growth is one of the most powerful forces supporting consumer spending. It doesn’t do a very good job of offsetting job losses directly.
Unemployment numbers are all over the place, as North America’s economic landscape continues to shift rapidly. Canadians know that the health of the US economy is inextricably linked to their own economic stability. The US Dollar Index (DXY) is currently hovering near the month-high at 100.85, which was the peak earlier today. It almost immediately tumbled to below 100.30 once the labor market data came out. This currency value and bilateral trade highlight just how connected the two economies are, especially when it comes to digital dollars.
Oil Prices and Currency Dynamics
As the most affected county on the significant export country of petroleum, Canada’s economy is extremely sensitive to oil prices. The Canadian dollar (CAD), for instance, often reacts to changes in oil prices. This reaction is a product of Canada’s extreme reliance on energy exports. The recent spike in oil prices may inject a new dynamic on how CAD tracks USD.
The US dollar adjusted significantly downward following the series of labor data releases. At the same time, the uptick in unemployment rate has provided strength to the Loonie against the dollar. Both currencies have continued to adjust as investors focus on the underlying economic realities which are becoming more obvious.
Or higher Loonie pair exposes fatal underlying weakness of the economy. While Canada does see some encouraging indicators such as new jobs and wage increases, lingering issues remain that need to be addressed for a stable, long-term economic rebuilding.