Improving Canadian Labor Market Supports CAD, Keeping USD/CAD Under Downward Pressure

Summary:

Canada’s labor market has shown a significantly stronger-than-expected performance. The country added 75,100 jobs in July, while the unemployment rate fell to a two-year low, indicating a gradual recovery in economic activity. Against the backdrop of weakening U.S. economic data and improving Canadian economic resilience, the Canadian dollar has gained support, leaving USD/CAD exposed to further downside risks in the short term.

SELL USDCAD

EXP

TRADING

1.40266

Entry Price

1.36310

1.41450

1.39358 -0.00766 -0.55%

0.0

Pips

Flat

1.36310

Exit Price

1.40266

Entry Price

1.41450

Fundamentals

Data released by Statistics Canada on Friday showed that Canada added 75,100 jobs in July, significantly exceeding market expectations. Meanwhile, the unemployment rate declined from 6.5% in June to 6.4%, marking the lowest level in nearly two years.

Following the release of the data, the Canadian dollar strengthened sharply, with USD/CAD falling to an intraday low and losses expanding to 0.5%. Canadian government bond yields initially moved higher after the strong employment report, as expectations for an improving Canadian economic outlook increased. However, bond markets later reversed direction, mainly due to the unexpected weakness in U.S. employment data, which prompted markets to reassess the Federal Reserve’s future policy path.

From a labor market perspective, Canada continues to show positive momentum. Between May and July, Canada added a cumulative 181,100 jobs, marking the strongest three-month employment gain since U.S. President Donald Trump introduced additional tariffs on Canadian goods.

The strong employment performance suggests that Canada’s economic momentum is extending into the third quarter. Previously, trade tensions and the impact of U.S. tariff policies caused a period of economic stagnation in Canada. However, recent economic indicators suggest that economic activity rebounded significantly in the second quarter.

Meanwhile, signs of slowing U.S. economic growth have further strengthened the relative advantage of the Canadian dollar against the U.S. dollar. If Canadian economic data continues to improve while expectations for Federal Reserve rate cuts increase, USD/CAD could face additional downside pressure.

Improving Canadian Labor Market Supports CAD, Keeping USD/CAD Under Downward Pressure_1

Technical Analysis

From a technical perspective, the overall downtrend in USD/CAD remains intact.

The pair previously broke below the key support zone near 1.3965, signaling that the short-term rebound structure has been disrupted. The price continues to trade with a bearish bias, and a further break below the key level of 1.39565 could open the door to additional downside.

The first downside target is located near the 1.3899 support level. A break below this area could expose the pair to further declines toward 1.3777, which corresponds to the 61.8% Fibonacci retracement level of the previous upward move.

If USD/CAD continues to trade below 1.39565, it would suggest that the rebound from 1.3480 has likely ended, with the market potentially returning to a medium-term bearish trend.

Trading Strategy

Direction: Sell

Entry: 1.3965

Take Profit: 1.3631

Stop Loss: 1.4145

Strategy Valid Until: September 6, 2026, 23:55

Support: 1.3899, 1.3865, 1.3768

Resistance: 1.3991, 1.4038, 1.4080

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