USD/CAD Canadian Dollar Rises with Strong Wage Growth

The Canadian dollar appreciated on Friday after the release of the Canadian jobs report. The economy added 10,000 jobs but it was the improvement in wages that was a positive for the loonie. Wages have grown 2.2 percent annually putting pressure on the Bank of Canada (BoC) to hike a third time in 2017. The strength of the loonie had an effect in a disappointing trade balance earlier in the week. Exports are on a downward trend and a rise in Canadian interest rates would put exporters in a tougher spot.

Dovish rhetoric from Bank of Canada (BoC) policymakers continues to signal rates will remain unchanged until the end of the year. In June the BoC quickly signalled an upcoming rate hike before raising the cost of borrowing by 25 basis points and again in September. The central bank was slated for its lack of communication on the second rate hike that leaves the benchmark rate at 1.00 percent. The Canadian economy appears to be cooling which has had the same effect on the eagerness of the central bank to hike for a third time.

usdcad Canadian dollar graph, October 6, 2017

The USD/CAD lost 0.14 percent on Friday. The currency pair is trading at 1.2547 after Canadian wages rose, improving the slim chances of a third rate hike in 2017. Although the headline jobs number was a disappointing 10,000 after 14,000 were expected the fact that wages went up and the unemployment rate down to 6.2 percent added to a stronger loonie. Full time jobs were the biggest winners, reversing the trend of part time jobs driving the headline higher.

Canadian data will be scarce next week with Monday, October 9 being a bank holiday. Highlights will include a pair of speeches from Bank of Canada (BoC) Deputy Governor Wilkins, housing data (starts, permits and new house price index). The biggest releases will be in the United States that after a strong NFP FOMC member speeches, the release of the minutes from the September FOMC meeting, US producer price index, inflation and retail sales.

The next hurdle for a December rate lift by the U.S. Federal Reserve will come with the release of retail sales and consumer price index (CPI) data on Friday, October 13 at 8:30 am EDT. Retail sales were weaker than expected in September with a contraction in the headline number. Inflation on the other hand met the forecast and given the focus will be on the CPI for clues that validate or weaken a case for a Fed December hike.

Market events to watch this week:

Tuesday, October 10
4:30am GBP Manufacturing Production m/m
Wednesday, October 11
2:00pm USD FOMC Meeting Minutes
Thursday, October 12
8:30am USD PPI m/m
8:30am USD Unemployment Claims
10:15am EUR ECB President Draghi Speaks
11:00am USD Crude Oil Inventories
Friday, October 13
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza