Canadian Dollar retreats despite a decline in the US Dollar Index

Falling oil prices weigh on the Canadian Dollar, allowing USD/CAD to recover its earlier losses.
Further BoC tightening is called into question by Canada's weak employment figures.
Expectations of a December Fed rate increase remain well supported by robust US employment figures.

Buyers return to USD/CAD in Monday's American session. The pair had traded lower for much of the day. Two pressures weigh on the Canadian Dollar (CAD): declining oil prices and the Bank of Canada's (BoC) challenge of curbing inflation without undermining a weakening labour market.

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1.4131 is the approximate USD/CAD level at the time of writing. The pair has recovered from an intraday low of 1.4077 despite a 0.45% daily decline in the US Dollar Index (DXY).

A roughly 12% decline last week has been followed by a further fall of more than 3% on the day for West Texas Intermediate (WTI). As Canada is a major crude exporter, the Loonie is exposed to oil price swings.

Last week's crude sell-off was partly fuelled by the Democrats' US midterm election victory. Traders wagered that Congress would push President Donald Trump to bring the war with Iran to an end. After Trump downplayed the prospect of further strikes, oil continued to fall on Monday. Qatar's prime minister is visiting Washington, DC, to discuss efforts to end the conflict with Trump and Vice President JD Vance.

Crude prices still exceed pre-war levels despite the retreat, leaving inflation risks skewed upwards. Stalled negotiations or an escalation in tensions could send prices higher again.

Third month of job losses clouds BoC rate decision

A 4.7K employment decline in October marked Canada's third consecutive month of job losses, Statistics Canada's Friday release showed. Economists had expected a 13.6K increase. The fall followed losses of 68.3K in September and 41.7K in August, while the Unemployment Rate climbed from 6.5% to 6.7%.

October's BoC decision lifted the policy rate to 2.50%, an increase of 25 basis points. The bank indicated that additional rises might be necessary to prevent higher energy costs from spreading into broader inflation. Weak employment figures now complicate that judgement. While persistent inflation leaves another increase on the table, labour market softness offers policymakers grounds to hold off.

Canadian Dollar faces added pressure from hawkish Fed

A 165K increase in US Nonfarm Payrolls (NFP) in October exceeded the 65K forecast by more than double. The Unemployment Rate also slipped to 4.1%. With employment holding firm, the Federal Reserve (Fed) has scope to increase rates in pursuit of its 2% inflation target. According to the CME FedWatch Tool, traders assign roughly an 80% probability to a December rate increase.

Describing the US economy as “remarkably stable” on Monday, Richmond Fed President Thomas Barkin characterised the direction of monetary policy as “straightforward,” while arguing that proceeding “with care.” was best. Inflation, he added, posed the principal risk to the Fed's mandate.

The US Dollar's next direction could hinge on Tuesday's US Consumer Price Index (CPI), which may reshape expectations for a December Fed rate increase. An above-forecast reading could bolster the case for further tightening and support the US Dollar. A softer result, by contrast, could allow the Canadian Dollar to recover ground.

Canadian Dollar Performance Today

Against the major currencies listed below, the Canadian Dollar (CAD) recorded its strongest performance against the Swiss Franc today. The table sets out its percentage changes against each currency.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.55%	-0.53%	-0.28%	0.05%	-0.71%	-1.50%	0.05%
EUR	0.55%		0.02%	0.27%	0.59%	-0.16%	-0.92%	0.60%
GBP	0.53%	-0.02%		0.25%	0.57%	-0.19%	-0.95%	0.57%
JPY	0.28%	-0.27%	-0.25%		0.32%	-0.43%	-1.20%	0.33%
CAD	-0.05%	-0.59%	-0.57%	-0.32%		-0.75%	-1.51%	0.00%
AUD	0.71%	0.16%	0.19%	0.43%	0.75%		-0.76%	0.76%
NZD	1.50%	0.92%	0.95%	1.20%	1.51%	0.76%		1.54%
CHF	-0.05%	-0.60%	-0.57%	-0.33%	-0.01%	-0.76%	-1.54%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Canadian Dollar on the left and following its row across to the US Dollar gives the percentage change for CAD (base)/USD (quote) in the corresponding cell.