Canadian Dollar weakens after disappointing July jobs report

• The Canadian Dollar weakens against the US Dollar following disappointing employment data.
• Statistics Canada reported that the Canadian economy shed 40,800 jobs in July, falling well short of market expectations for a 13,500 gain.
• The unemployment Rate held steady at 6.9%, slightly better than the anticipated 7.0%.

The Canadian Dollar (CAD) loses ground against the US Dollar (USD) on Friday, with USD/CAD pushing higher as traders digest a disappointing Canadian labor market report for July. Weaker employment data is weighing on the Loonie, reinforcing concerns about slowing economic momentum and increasing speculation that the Bank of Canada (BoC) may lean dovish in the months ahead.

At the time of writing, the USD/CAD pair is hovering around 1.3750 during the American trading session, staging a modest recovery after slipping to a near two-week low on Thursday. Meanwhile, a mild rebound in the US Dollar, alongside subdued Oil prices, is weighing on the Canadian Dollar. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is holding firm above the 98.00 level, last seen trading near 98.30, up nearly 0.22%.

Statistics Canada reported that the economy lost 40,800 jobs in July, a sharp reversal from the previous month's robust gain of 83,100 and well below market expectations for a 13,500 increase. The decline was accompanied by a dip in the Participation Rate, which fell to 65.2% from 65.4%, indicating that fewer Canadians were actively engaged in the labor force. Despite the drop in employment, the Unemployment Rate remained unchanged at 6.9%, slightly better than the anticipated rise to 7.0%.

On the wage front, Average Hourly Wages rose 3.5% YoY, accelerating from 3.2% in June. The increase in wages suggests that while job creation may be slowing, wage pressures persist, complicating the BoC's policy outlook as it balances softening labor demand with lingering inflation risks.

The Bank of Canada held its key interest rate steady at 2.75% in the July meeting, marking the third consecutive pause following seven earlier cuts since mid‑2024. The decision was guided by persistent economic uncertainty, particularly around US trade policy and tariff risks, as well as underlying inflation that remains above target. Governor Tiff Macklem stated that US tariffs and policy are "still too unpredictable to be able to provide a single forecast." According to a report published by BHH MarketView, markets are now strengthening the case for a 25 basis-point rate cut by year-end, with odds hovering around 80%.

With little in the way of fresh US data on Friday, attention now shifts to next week's US Consumer Price Index (CPI) release, which could offer further clues on the timing and pace of the Federal Reserve's (Fed) next monetary policy move.