Canadian dollar rises to one-month peak before domestic jobs report

July 5, 2024

Key points:

• Canadian dollar gains against the greenback
• Touches its strongest level since June 3
• Canada’s services economy deteriorates in June
• Canadian bond yields rise across the curve

The loonie strengthened to a one-month high against its U.S. counterpart on Thursday. This rise occurred as the greenback posted broad-based declines ahead of domestic jobs data, which could influence expectations for further interest-rate cuts by the Bank of Canada.

Loonie strengthens despite weaker services sector

Picture: Loonie on the rise, trading at 1.3695. Download the VT Markets app.

The Loonie (USDCAD) traded 0.2% higher at 1.3609 to the U.S. dollar, or 73.48 U.S. cents. This marks its strongest level since June 3, despite soft business activity data.

Canada’s services economy shifted back into contraction in June. A decline in new business impacted the sector’s performance even as inflation pressures cooled, according to S&P Global Canada services PMI data.

Investors anticipate job gains but expect unemployment rate to rise

The Canadian employment report, due on Friday, is expected to show the economy adding 22,500 jobs in June. However, it is also anticipated that the unemployment rate will rise to 6.3% from 6.2% in May.

Investors see a roughly 40% chance that the Bank of Canada will cut rates at its next policy meeting on July 24. Last month, the BoC became the first G7 central bank to ease policy, lowering its benchmark rate by 25 basis points to 4.75%.

U.S. dollar weakens on Fed rate cut prospects

The U.S. dollar (DXY) lost ground against a basket of major currencies after recent weak U.S. economic data raised prospects that the Federal Reserve would cut interest rates as soon as September. U.S. markets were closed for the Independence Day holiday.

Oil prices steady, Canadian bond yields rise

The North American price of oil (CL1!), one of Canada’s major exports, remained nearly unchanged at $83.91 a barrel, holding near its highest level in more than one month.

Canadian bond yields rose across the curve. The 10-year yield increased by 3.9 basis points to 3.605%, moving closer to the one-month high it touched on Tuesday at 3.659%.

You might be interested: US yields boost dollar, leaves yen struggling

The current trends show cautious optimism for the Canadian dollar as it benefits from a weaker U.S. dollar and anticipations of domestic job growth. However, the potential rise in the unemployment rate and the deteriorating services sector may put pressure on the Bank of Canada to consider further rate cuts.

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