Canada Unemployment Rate is expected to tick up in July after declining in June

• Canada is expected to show moderate job growth and a higher Unemployment Rate in July.
• These figures are unlikely to alter the BoC's wait-and-see stance.
• The Canadian Dollar is regaining lost ground against a weaker US Dollar.  

Statistics Canada will release July's Canadian Labour Force Survey report on Friday. The market consensus anticipates some moderation in job creation, with the Unemployment Rate increasing. Unless there is a big surprise, these numbers are unlikely to alter the Bank of Canada's (BoC) wait-and-see stance on interest rates.

The BoC met market expectations and left its benchmark interest rates unchanged at  2.75% for the third consecutive meeting in July, after having slashed them from 5% since May 2024.

The Bank's Governor, Tiff Macklem, observed the strength of the Canadian economy in the face of global trade uncertainty, adding that the bank will remain vigilant to assess the impact of US tariffs on Canada's economic growth.

Previous data released by Canada's statistics office revealed an unexpected 83,100 net increase in employment in June, beating market expectations of a flat reading. Likewise, the Unemployment Rate declined to 6.9% from the previous 7% instead of increasing to  7.1% as market analysts had forecasted.

Later in July, Canada's Gross Domestic Product data showed that the economy contracted in May, but the rebound observed in some sectors suggests that the GDP might show a slight growth in Q2, which, in the face of the heating inflationary trends, would endorse the BoC's "patience" message.

What can we expect from the next Canadian Unemployment Rate print?

According to the market's consensus, the Canadian economy continued creating jobs in July, although at a slower pace. The Net Change in Employment is seen moderating to 13,500, well below June's 83,100 new jobs, while the Unemployment Rate is expected to return to 7% level after retreating to 6.9% in June. 

The statement of the Bank of Canada's latest monetary policy meeting confirms that the US economy is showing some resilience despite the uncertain trade relationship with the US, and that the employment creation has held up even though the sectors affected by trade have experienced some weakening.

The bank observed the growing unemployment trend and the softening wage inflation but called for a careful approach towards monetary policy before the impact of tariffs on employment, business investment, and household spending is evidenced.

When is the Canada Unemployment Rate released, and how could it affect USD/CAD?

The Canadian Unemployment Rate for July, together with the Labour Force Survey numbers, will be released at 12:30 GMT.

The Bank of Canada left the door open for further monetary easing before the end of the year, but hopes of a September rate cut remain relatively low so far, and Friday's data is unlikely to alter that consensus unless the final reading shows a negative surprise.

The market expectations suggest that the Canadian economy continues to create jobs despite the uncertain global trade scenario, and recent Consumer Price Index (CPI) figures revealed that price pressures are increasing, which strengthens the case for maintaining the status quo in the next monetary policy meeting.

The next BoC rate decision on September 17, however, is still far away, and Friday's employment report is unlikely to be decisive for the bank's monetary policy plans. More jobs data and the Q2 GDP will be released ahead of the BoC's meeting, and the bank is likely to wait for further input for a better-founded assessment of the impact of tariffs before taking monetary policy decisions.

In currency markets, the Canadian Dollar reversal from late June and early July lows seems to have found significant support, as the USD/CAD featured an impulsive pullback from two-month highs near 1.3900 following a grim US Nonfarm Payrolls report last week.

The USD/CAD is holding at a previous support area above 1.3700, with upside attempts limited so far. With investors ramping up their bets for a Federal Reserve (Fed) rate cut in September, another positive surprise on Canadian employment would create a certain monetary policy divergence in favour of the Loonie.

Technical indicators are showing a growing bearish bias, with the 4-hour Relative Strength Index treading into negative territory below 50, and correlation studies suggesting scope for a deeper reversal, as the US Dollar Index tests fresh lows at the 98.00 area.

Below the support at the 1.3700 round level and the July 28 low of 1.3690, the next target would be the July 23 low at 1.3580 and the long-term lows at 1.3540 hit on June 16. On the upside, immediate support is at the August 5 high of 1.3810 ahead of the 1.3875-1.3885 area (May 22, August 1 high). A confirmation above here would cancel the bearish view and bring the May 20 high of 1.3965 into focus.