The Canadian dollar experienced a significant rally on Friday, climbing past the 72 U.S. cent mark for the first time since late September. This surge was fueled by a much stronger-than-anticipated national employment report, which solidified financial market expectations that the Bank of Canada will maintain its current interest rate stance.
Robust Jobs Data Defies Expectations
Statistics Canada released November labour figures that far exceeded forecasts. The economy added 54,000 positions, a stark contrast to the predicted loss of 2,500 jobs. Concurrently, the unemployment rate fell to 6.5 per cent from 6.9 per cent, defying economist predictions of a rise to seven per cent.
In direct response to this data, the loonie strengthened considerably. By Friday afternoon, it had jumped 0.83 per cent to trade at 72.23 cents U.S., up from Thursday's close of 71.64 cents U.S.
Market Analysts Weigh In on the Rally
Currency strategists at Scotiabank Global Banking and Markets, Shaun Osborne and Eric Theoret, noted the loonie was finishing the week on a strong note following the "surprisingly robust" report. They pointed out that the headline gain was driven entirely by part-time employment, as full-time positions actually declined in November.
However, the analysts highlighted that the drop in the unemployment rate and persistent wage growth have increased market bets on a potential interest rate hike by the end of 2026. "All told, there seems grounds to expect the (Canadian dollar) to run higher to extend a little more," they stated in a client note.
Central Bank Decisions Loom
The immediate path for the currency will be heavily influenced by key central bank meetings scheduled for the following week. The Bank of Canada is widely expected to hold its benchmark rate at 2.25 per cent at its December 10 meeting. Meanwhile, markets have priced in a 25-basis-point cut from the U.S. Federal Reserve, which would bring its rate down to 3.75 per cent.
A narrowing of the interest rate differential between Canada and the United States is generally supportive for the Canadian dollar. Osborne and Theoret suggested that a "hawkish hold" from the Bank of Canada, contrasted with a potentially "more dovish-than-expected" Fed, could compress the rate spread further and provide additional lift for the loonie.
Looking ahead to the coming week, the Scotiabank team forecasts the Canadian dollar could trade in a range between 71.6 and 72.7 cents U.S.. They added a note of seasonal caution, observing that December trends have not always been favourable for the loonie, though they have often been weak for the U.S. dollar index.