Canadian Dollar lacks direction ahead of twin US, Canadian employment releases

USD/CAD trades around 1.4020 on Friday at the time of writing, up a modest 0.06% on the day with no clear directional bias as investors remain cautious ahead of the release of US and Canadian July employment reports.

The US Dollar (USD) continues to draw support from safe-haven demand amid persistent tensions in the Middle East. Uncertainty surrounding the full reopening of the Strait of Hormuz remains elevated as Iran's parliament reviews a draft agreement that would restrict the passage of US and Israeli vessels while maintaining several limitations on this strategic shipping route. The situation continues to fuel concerns over global supply chains and the inflation outlook.

Meanwhile, US Treasury yields remain elevated as markets reassess the possibility that the Federal Reserve (Fed) could maintain a restrictive policy stance if inflationary pressures persist. Several central bank officials have recently adopted a cautious tone, reinforcing expectations that interest rates could remain higher for longer.

Investors now await the July Nonfarm Payrolls (NFP) report. Economists expect the US economy to have added 80K jobs after 57K in June, while the Unemployment Rate is forecast to remain unchanged at 4.2%. Annual wage growth, as measured by Average Hourly Earnings, is also expected to hold steady at 3.5%. The data could reshape expectations for the Fed's policy path and trigger increased volatility in the US Dollar.

On the Canadian side, higher Oil prices continue to provide fundamental support to the Canadian Dollar (CAD), as Canada typically benefits from stronger export revenues when crude prices rise. However, that support has so far been insufficient to offset the current strength of the US Dollar, leaving USD/CAD trading near its recent highs.

Markets will also closely watch Canada's July employment report, which is scheduled for release at the same time as the US NFP. Economists expect the Canadian economy to have added 15K jobs, following an increase of 18.2K in June, while the Unemployment Rate is forecast to remain unchanged at 6.5%.

Canada labour momentum seen extending as TD Securities flags firmer hiring and lower jobless rate

According to TD Securities, the Canadian labour market is expected to “build on recent strength” in July, with employment “forecast to rise by another 20k… in line with the market consensus,” following gains that have “recover[ed] most of the 2026 job losses over May/June.” Strategists highlight that “monthly hiring intentions have been trending higher into Q3, with the S&P Composite Employment indicator reaching its highest level since 2024Q4 in July,” underscoring a firmer demand for labour.

TD Securities notes that the services sector “could see a mild headwind from a partial unwind of recent strength in accommodation/food services,” although they emphasise that “payroll employment has been on a much stronger trajectory in recent months.” On the headline figures, they judge that “a 20k print would see the unemployment rate fall 0.1pp to 6.4% (market: 6.5%), while wage growth should slow by 0.3pp to 3.4% y/y on a large base effect from last July.”