Canadian Dollar Holds Near Three-Week Low After Steepest Fall Since January

The US dollar traded at 1.4129 Canadian dollars on Monday, up 0.8 percent from 1.4017 in the Orbit Post market wire snapshot for the day. The Canadian dollar held near its weakest level in almost three weeks. It kept most of the loss from Friday, when Reuters reported the currency fell 0.8 percent to 1.4128 per US dollar, its steepest one day decline since January. Dow Jones Newswires reported late on Monday morning that the loonie had eased to 70.78 US cents, compared with a Friday close of 70.86 US cents.

Two jobs reports, opposite results

The move followed jobs data from both countries on Friday, November 6. Canada lost 4,700 jobs in October, the third straight month the economy shed jobs, Reuters reported. The jobless rate rose to 6.7 percent, a six month high. Analysts had expected a gain of 13,600 jobs. The United States went the other way. US employers added 165,000 jobs in October, and Reuters reported that US nonfarm payrolls rose more than expected, lifting the US dollar against a basket of major currencies.

Scotiabank strategists told Reuters that weak Canadian data and strong US data together pushed the Canadian dollar lower into the weekend. They also said high stock market volatility had overshadowed other factors. Reuters reported that global equity markets were hit that week by a selloff in AI stocks, and the Canadian dollar was on track to lose nearly 1 percent for the week after three straight weeks of gains.

Rate bets moved with the currency

Traders cut their bets on another Bank of Canada move. Swap market data cited by Reuters put the chance of the central bank tightening policy in December at 35 percent, down from 40 percent before the jobs report. The Canadian two year bond yield fell 3.3 basis points to 3.123 percent on Friday, Reuters reported, and it moved further below the matching US yield, to a gap of about 139 basis points. A wider gap makes US assets pay more than Canadian ones, which supports the US dollar.

Oil added pressure. Oil is one of Canada's main exports, and US crude futures added to a steep weekly decline on Friday, trading 0.1 percent lower at 90.40 dollars a barrel in the Reuters report. A day earlier, the Bank of Canada and the federal finance ministry had unveiled a new five year monetary policy framework and kept the inflation target unchanged at 2 percent.

Why it matters and what comes next

A weaker Canadian dollar raises the cost of US goods, travel and imports for Canadian households and firms, while it helps Canadian exporters who sell in US dollars. Traders will now watch whether the Bank of Canada still sees a need to tighten in December, and whether oil and US data keep pulling the pair in the same direction. For now, the rate sits above 1.41, a level the pair had not held since October 19 on an intraday basis, according to Reuters.